<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15(d) of the
- Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999 or
Transition report pursuant to Section 13 or 15(d) of the
- Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 0-19598
-------
infoUSA INC.
---------------------------------------------------
(exact name of registrant specified in its charter)
DELAWARE 47-0751545
------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 593-4500
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
24,325,246 shares of Class A Common Stock and 24,004,254 shares of Class B
Common Stock at July 27, 1999
<PAGE> 2
infoUSA INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO
<S> <C>
PART I - FINANCIAL INFORMATION 3
Item 1. Consolidated Balance Sheets as of June 30,
1999 and December 31, 1998 4
Consolidated Statements of Operations for the three
months and six months ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flows for the six
months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of
Results of Operations 11 - 21
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 22
PART II - OTHER INFORMATION 23
Item 4. Submission of Matters to a Vote of
Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signature 25
Index to Exhibits 26
</TABLE>
2
<PAGE> 3
infoUSA INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1999
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
3
<PAGE> 4
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................ $ 38,489 $ 29,603
Marketable securities .................................... 15,290 20,620
Trade accounts receivable, net of allowances of $4,013 and
$7,289, respectively ................................... 43,364 40,126
List brokerage trade accounts receivable ................. 11,167 17,831
Income taxes receivable .................................. 147 3,387
Prepaid expenses ......................................... 3,727 2,371
Deferred marketing costs ................................. 3,784 4,365
--------- ---------
Total current assets ............................. 115,968 118,303
--------- ---------
Property and equipment, net ................................ 42,212 40,264
Intangible assets, net of accumulated amortization ......... 102,484 109,378
Other assets ............................................... 3,529 2,828
--------- ---------
$ 264,193 $ 270,773
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ........................ $ 2,550 $ 1,580
Accounts payable ......................................... 5,745 7,226
List brokerage trade accounts payable .................... 12,225 18,847
Accrued payroll expenses ................................. 5,455 2,830
Accrued expenses ......................................... 4,995 12,465
Deferred revenue ......................................... 5,661 4,534
Deferred income taxes .................................... 5,728 664
--------- ---------
Total current liabilities ........................ 42,359 48,146
--------- ---------
Long-term debt, net of current portion ..................... 118,498 126,679
Deferred income taxes ...................................... 6,540 7,701
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0025 par value. Authorized 5,000,000
shares; none issued or outstanding ..................... -- --
Class A common stock, $.0025 par value. Authorized
220,000,000 shares; 24,786,246 shares issued and
24,325,246 outstanding at June 30, 1999 and
24,689,761 shares issued and 24,581,261
outstanding at December 31, 1998 ....................... 62 62
Class B common stock, $.0025 par value. Authorized
75,000,000 shares; 24,951,254 shares issued and
24,004,254 shares outstanding at June 30, 1999
and 24,854,989 shares issued and 24,655,489 shares
outstanding at December 31, 1998 ....................... 62 62
Paid-in capital .......................................... 73,355 72,476
Retained earnings ........................................ 27,282 15,284
Treasury stock, at cost, 446,232 shares of Class A common
stock and 947,000 shares of Class B common stock held
at June 30, 1999, and 108,500 shares of Class A common
stock and 199,500 shares of Class B common stock held
at December 31, 1998 .................................... (9,442) (2,951)
Accumulated other comprehensive income ................... 5,477 3,314
--------- ---------
Total stockholders' equity ....................... 96,796 88,247
--------- ---------
$ 264,193 $ 270,773
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 5
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales .............................. $ 57,573 $ 62,076 $ 113,093 $ 117,456
Costs and expenses:
Database and production costs ........ 17,114 16,086 33,290 31,491
Selling, general and administrative .. 23,762 27,103 46,098 50,497
Depreciation and amortization ........ 5,694 6,384 11,727 13,254
Acquisition-related and restructuring
charges............................. -- 400 -- 8,877
--------- --------- --------- ---------
46,570 49,973 91,115 104,119
--------- --------- --------- ---------
Operating income ....................... 11,003 12,103 21,978 13,337
Other income (expense):
Investment income .................... 1,704 15,098 4,188 16,094
Interest expense ..................... (2,934) (1,865) (6,048) (3,144)
--------- --------- --------- ---------
Income before income taxes and ......... 9,773 25,336 20,118 26,287
extraordinary item
Income taxes ........................... 4,088 9,964 8,248 12,022
--------- --------- --------- ---------
Income before extraordinary item ....... 5,685 15,372 11,870 14,265
Extraordinary item, net of tax ......... -- -- 128 --
--------- --------- --------- ---------
Net income ............................. $ 5,685 $ 15,372 $ 11,998 $ 14,265
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Income before extraordinary item ..... $ 0.12 $ 0.31 $ 0.25 $ 0.29
Extraordinary item ................... -- -- -- --
--------- --------- --------- ---------
Net income ........................... $ 0.12 $ 0.31 $ 0.25 $ 0.29
========= ========= ========= =========
Weighted average shares outstanding .. 48,233 49,607 48,417 49,298
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Income before extraordinary item ..... $ 0.12 $ 0.30 $ 0.25 $ 0.28
Extraordinary item ................... -- -- -- --
--------- --------- --------- ---------
Net income ........................... $ 0.12 $ 0.30 $ 0.25 $ 0.28
========= ========= ========= =========
Weighted average shares outstanding .. 48,307 51,226 48,465 50,754
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE> 6
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................... $ 11,998 $ 14,265
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ............. 11,728 13,254
Deferred income taxes ..................... 2,189 4,985
Net realized gains on sale of
marketable securities investments ....... (3,373) (17,604)
Impairment of other assets ................ -- 2,000
Acquisition-related and restructuring
charges ................................. -- 8,877
Changes in assets and liabilities, net of
effect of acquisitions:
Trade accounts receivable ............. (2,633) (4,130)
List brokerage trade accounts
receivable .......................... 6,664 --
Prepaid expenses and other assets ..... (1,298) (1,296)
Deferred marketing costs .............. 581 (3,177)
Accounts payable ...................... (1,481) (3,903)
List brokerage trade accounts payable . (6,343) --
Income taxes receivable and payable ... 3,240 (1,852)
Accrued expenses and other liabilities (3,718) (13,242)
--------- ---------
Net cash provided by (used in)
operating activities .............. 17,554 (1,823)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable securities .. 17,338 36,392
Purchases of marketable securities ............ (4,184) (5,727)
Purchases of property and equipment ........... (2,342) (10,402)
Acquisitions of businesses .................... (1,536) (31,595)
Consumer database costs ....................... -- (1,133)
Software development costs .................... (2,929) (2,717)
Other ......................................... 531 --
--------- ---------
Net cash provided by (used in)
investing activities ................ 6,878 (15,182)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ................... (1,213) (110,367)
Proceeds from long-term debt .................. -- 144,000
Acquisitions of treasury stock ................ (6,553) --
Deferred financing costs ...................... (103) (5,253)
Repurchase of senior subordinated notes ....... (8,370) --
Proceeds from exercise of stock options ....... 842 770
Tax benefit related to employee stock options . -- 401
--------- ---------
Net cash provided by (used in)
financing activities ................ (15,397) 29,551
Effect of exchange rate fluctuations on cash .. (149) --
--------- ---------
Net increase in cash and cash equivalents ....... 8,886 12,546
Cash and cash equivalents, beginning ............ 29,603 10,653
--------- ---------
Cash and cash equivalents, ending ............... $ 38,489 $ 23,199
========= =========
Supplemental cash flow information:
Interest paid ................................. $ 6,220 $ 3,110
========= =========
Income taxes paid ............................. $ 2,891 $ 8,518
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE> 7
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited financial statements have been prepared on the same
basis as the audited consolidated financial statements and, in the opinion of
management, contain all adjustments, consisting of normal recurring adjustments,
necessary to fairly present the financial information included therein.
The Company suggests that this financial data be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 1998 included in the Company's 1998 Annual Report on Form 10-K
filed with the Securities and Exchange Commission. Results for the interim
period presented are not necessarily indicative of results to be expected for
the entire year.
2. EARNINGS PER SHARE INFORMATION
The following table shows the amounts used in computing earnings per share and
the effect on the weighted average number of shares of dilutive potential common
stock.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding
used in basic EPS ......................... 48,233 49,607 48,417 49,298
Net additional common stock equivalent shares
outstanding after assumed exercise of
stock options ............................. 74 1,619 48 1,456
------ ------ ------ ------
Weighted average number of shares outstanding
used in diluted EPS ....................... 48,307 51,226 48,465 50,754
====== ====== ====== ======
</TABLE>
3. SEGMENT INFORMATION
The Company currently manages existing operations utilizing financial
information accumulated and reported for two general business segments.
The small business segment principally engages in the selling of sales lead
generation and consumer CD-ROM products to small to medium sized companies,
small office and home office businesses and individual consumers. This segment
includes the sale of content via the Internet.
The large business segment principally engages in the selling of data
processing services, licensed databases, database marketing solutions and list
brokerage and list management services to large companies. This segment includes
the licensing of databases for Internet directory assistance services.
As described above, the small business and large business segments are
principally engaged in the sell of certain designated products, although each
segment may sell any of the Company's products.
Corporate activities principally represent the information systems
technology, database compilation, database verification, and administrative
functions of the Company. Investment income (loss), interest expense, income
taxes, amortization of intangibles, and depreciation expense are only recorded
in corporate activities. The Company does not allocate these costs to the two
business segments. The small business and large business segments reflect actual
net sales, direct order production, and identifiable direct sales and
marketing-related costs related to their operations. The Company records unusual
or non-recurring items including acquisition-related and restructuring charges
and provisions for litigation settlement in corporate activities to allow for
the analysis of the sales business segments excluding such unusual or
non-recurring charges.
The Company accounts for property and equipment on a consolidated basis.
The majority of the Company's property and equipment is shared by the Company's
business segments. Depreciation expense is recorded in corporate activities.
7
<PAGE> 8
The Company has no intercompany sales or intercompany expense transactions.
Accordingly, there are no adjustments necessary to eliminate amounts between the
Company's segments.
The following table summarizes segment information:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1999
---------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ....................... $ 32,894 $ 24,679 $ -- $ 57,573
Operating income (loss) ......... 14,962 11,883 (15,842) 11,003
Investment income ............... -- -- 1,704 1,704
Interest expense ................ -- -- 2,934 2,934
Income (loss) before income taxes
and extraordinary item ........ 14,962 11,883 (17,072) 9,773
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1998
---------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ....................... $ 36,658 $ 25,418 $ -- $ 62,076
Acquisition-related and
restructuring charges ......... -- -- 400 400
Operating income (loss) ......... 15,867 9,434 (13,198) 12,103
Investment income ............... -- -- 15,098 15,098
Interest expense ................ -- -- 1,865 1,865
Income before income taxes and
extraordinary item ............ 15,867 9,434 35 25,336
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ....................... $ 66,022 $ 47,071 $ -- $113,093
Operating income (loss) ......... 31,632 22,221 (31,875) 21,978
Investment income ............... -- -- 4,188 4,188
Interest expense ................ -- -- 6,048 6,048
Income (loss) before income taxes
and extraordinary item ........ 31,632 22,221 (33,735) 20,118
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ....................... $ 71,403 $ 46,053 $ -- $117,456
Acquisition-related and
restructuring charges ......... -- -- 8,877 8,877
Operating income (loss) ......... 32,851 16,526 (36,040) 13,337
Investment income ............... -- -- 16,094 16,094
Interest expense ................ -- -- 3,144 3,144
Income (loss) before income taxes
and extraordinary item ........ 32,851 16,526 (23,090) 26,287
</TABLE>
8
<PAGE> 9
4. COMPREHENSIVE INCOME
Comprehensive income (loss), including the components of other comprehensive
income (loss), is as follows:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
-------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income ................................ $ 5,685 $ 15,372 $ 11,998 $ 14,265
Other comprehensive income (loss):
Unrealized gain (loss) from investments:
Unrealized gains (losses) ............. (595) (16,498) 2,908 15,842
Related tax expense ................... 226 6,046 (1,105) (6,020)
-------- -------- -------- --------
Net ................................... (369) (10,452) 1,803 9,822
-------- -------- -------- --------
Reclassification adjustment for net gains
(losses) realized on sale of marketable
securities:
Realized gains (losses) ............... 168 131 1,603 (16,547)
Related tax expense ................... (64) (50) (609) 6,288
-------- -------- -------- --------
Net ................................... 104 81 994 (10,259)
-------- -------- -------- --------
Foreign currency translation adjustments -- -- (634) --
-------- -------- -------- --------
Total other comprehensive income (loss) ... (265) (10,371) 2,163 (437)
-------- -------- -------- --------
Comprehensive income ...................... $ 5,420 $ 5,001 $ 14,161 $ 13,828
======== ======== ======== ========
</TABLE>
The components of accumulated other comprehensive income is as follows:
<TABLE>
<CAPTION>
FOREIGN ACCUMULATED
CURRENCY UNREALIZED OTHER
TRANSLATION GAINS ON COMPREHENSIVE
ADJUSTMENTS SECURITIES INCOME
----------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at June 30, 1999 $ (634) $6,111 $5,477
======== ====== ======
Balance at June 30, 1998 $ -- $3,314 $3,314
======== ====== ======
</TABLE>
5. CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings, claims and
litigation arising in the ordinary course of business. Management believes that
any resulting liability should not materially affect the Company's financial
position, results of operations, or cash flows.
9
<PAGE> 10
6. SUBSEQUENT EVENTS
Effective July 1, 1999, the Company acquired all issued and outstanding common
stock of Donnelley Marketing, Inc. ("Donnelley"), a division of First Data
Corporation. Donnelley is a national consumer database and database marketing
company. Consideration for the acquisition was $200.0 million in cash (excluding
any acquisition-related costs), funded using a combination of existing cash and
borrowings under new senior secured credit facilities further described below.
The acquisition will be accounted for using the purchase method of accounting.
As part of the acquisition, the Company anticipates recording goodwill and other
intangibles totaling approximately $202.0 million to be amortized over lives
ranging from 5 to 20 years. The Company is in the process of performing a
valuation analysis to allocate the cost of the acquisition, which is anticipated
to be completed prior to December 31, 1999.
During July 1999, the Company negotiated a $195.0 million Senior Secured Credit
Facilities ("Credit Facilities") borrowing arrangement with Deutsche Bank,
comprised of: Term Loan A Facility in the amount of $65.0 million which provides
for grid-based interest pricing based upon the Company's leverage ratio and
ranges from base rate + 1.25% to 2.00% for base rate loans and from LIBOR +
2.25% to 3.00% for LIBOR loans with a maturity of 5 years; a Term Loan B
Facility in the amount of $100.0 million which provides interest at base rate +
2.50% for base rate loans and LIBOR + 3.50% for LIBOR loans with a maturity of 7
years; and a Revolving Credit Facility in the amount of $30.0 million which
provides the same interest pricing as the Term Loan A Facility with a maturity
of 7 years. Substantially all assets of the Company are pledged as security
under the terms of the Credit Facilities.
In connection with the acquisition of Donnelley during July 1999, the Company
borrowed $165.0 million under the Credit Facilties.
10
<PAGE> 11
infoUSA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading provider of business and consumer marketing information
and data processing services. The Company's products and services help its
clients generate new customers more effectively at lower cost. The Company's key
assets include a proprietary database of over 11 million businesses and a
consumer database of over 115 million households and 195 million individuals in
the United States and Canada, which the Company believes are among the most
comprehensive and accurate available. The Company leverages these key assets by
selling a broad range of marketing information products and data processing
services through targeted distribution channels primarily to small and medium
size businesses and also to consumers and large corporations.
This discussion and analysis contains forward-looking statements, including
without limitations statements in the discussion of database and production
costs,year 2000 readiness disclosure, accounting standards and liquidity and
capital resources, within the meaning of Section 21E of the Securities Exchange
Act of 1934 and Section 27A of the Securities Act of 1933, which are subject to
the "safe harbor" created by those sections. The Company's actual future results
could differ materially from those projected in the forward-looking statements.
Some factors which could cause future actual results to differ materially from
the company's recent results or those projected in the forward-looking
statements are described in "Factors Affecting Operating Results" below. The
Company assumes no obligation to update the forward-looking statement or such
factors.
RESULTS OF OPERATIONS
The Company had previously made certain disclosures relative to the
continuing results of operations of acquired companies where appropriate and
possible, although the Company has in the case of all acquisitions since 1996,
immediately integrated the operations of the acquired companies into existing
operations of the Company. Generally, the results of operations for these
acquired activities are no longer separately accounted for from existing
activities. The Company cannot report on the results of operations of acquired
companies upon completion of the integration as the results are combined with
existing results. Additionally, upon integration of acquired operations, the
Company frequently combines acquired products or features with existing
products, and experiences significant cross-selling of products between business
units, including sales of acquired products by existing business units and sales
by acquired business units of existing products. Due to recent and potential
future acquisitions, future results of operations will not be comparable to
historical data. While the results cannot be accurately quantified, acquisitions
have had a significant impact on net sales.
11
<PAGE> 12
The following table sets forth, for the periods indicated, certain items
from the Company's statement of operations data expressed as a percentage of net
sales. The amounts and related percentages may not be fully comparable due to
the acquisition of Walter Karl in March 1998 and JAMI Marketing Services (JAMI)
in June 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales ...................................................... 100% 100% 100% 100%
Costs and expenses:
Database and production costs ................................ 30 26 30 27
Selling, general and administrative .......................... 41 44 41 43
Depreciation and amortization ................................ 10 10 10 11
Acquisition-related and restructuring charges ................ -- 1 -- 8
-------- -------- -------- --------
Total costs and expenses .................................. 81 81 81 89
-------- -------- -------- --------
Operating income ............................................... 19 19 19 11
Other income (expense), net .................................... (2) 21 (1) 11
-------- -------- -------- --------
Income before income taxes and extraordinary item .............. 17 40 18 22
Income taxes ................................................... 7 15 7 10
-------- -------- -------- --------
Income before extraordinary item ............................... 10 25 11 12
Extraordinary item, net of tax ................................. -- -- -- --
-------- -------- -------- --------
Net income ..................................................... 10% 25% 11% 12%
======== ======== ======== ========
OTHER DATA:
SALES BY SEGMENT:
Small business .......................................... $ 32.9 $ 36.7 $ 66.0 $ 71.4
Large business .......................................... 24.7 25.4 47.1 46.1
-------- -------- -------- --------
Total ................................................... $ 57.6 $ 62.1 $ 113.1 $ 117.5
======== ======== ======== ========
SALES BY SEGMENT AS A PERCENTAGE OF NET SALES:
Small business .......................................... 57% 59% 58% 61%
Large business .......................................... 43 41 42 39
-------- -------- -------- --------
Total ................................................... 100% 100% 100% 100%
======== ======== ======== ========
Earnings before, interest, taxes, depreciation and amortization,
(EBITDA), as adjusted (1) .................................... $ 16,697 $ 18,887 $ 33,705 $ 35,468
======== ======== ======== ========
EBITDA, as adjusted, as a percentage of net sales .............. 29% 30% 30% 30%
======== ======== ======== ========
</TABLE>
(1) "EBITDA, as adjusted" is defined as operating income adjusted to exclude
depreciation, amortization of intangible assets and acquisition-related and
restructuring charges. EBITDA is presented because it is a widely accepted
indicator of a company's ability to incur and service debt and of the Company's
cash flows from operations excluding any non-recurring items. However, EBITDA,
as adjusted, does not purport to represent cash provided by operating activities
as reflected in the Company's consolidated statements of cash flows, is not a
measure of financial performance under generally accepted accounting principles
("GAAP") and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. Also, the measure of
EBITDA, as adjusted, may not be comparable to similar measures reported by other
companies.
12
<PAGE> 13
1999 COMPARED TO 1998
NET SALES
Net sales for the quarter ended June 30, 1999 were $57.6 million, a decrease of
7% from $62.1 million for the same period in 1998. Net sales of the small
business segment for the second quarter of 1999 were $32.9 million, a 10%
decrease from $36.7 million for the same period in 1998. The decrease in net
sales of the small business segment is principally due to the decrease in net
sales of consumer CD-ROM products. The Company recorded net sales of consumer
CD-ROM products of $4.3 million and $6.4 million for the quarters ended June 30,
1999 and 1998, respectively. Effective for fiscal year 1999, the Company
modified its retail distribution strategy to better match its sale of consumer
CD-ROM products to distributors with the sell-through at the retail level. Net
sales of the large business segment for the second quarter of 1999 were $24.7
million, a 3% decrease from $25.4 million in the second quarter of 1998. The
Company recorded net sales of data processing services of $13.6 million and
$16.2 million for the quarters ended June 30, 1999 and 1998, respectively.
During the first quarter of 1999, a significant data processing services
customer transferred the same processing in-house. The decrease in net sales of
data processing services related to the loss of this customer was offset by
increased sales of data processing services by the Company's National Accounts
sales force.
Net sales for the six months ended June 30, 1999 were $113.1 million, a decrease
of 4% from $117.5 million for the same period in 1998. Net sales of the small
business segment for the six months ended June 30, 1999 were $66.0 million, an
8% decrease from $71.4 million for the same period in 1998. The decrease in net
sales of the small business segment is principally due to the decrease in net
sales of consumer CD-ROM products. The Company recorded net sales of consumer
CD-ROM products of $8.9 million and $13.5 million for the six months ended June
30, 1999 and 1998, respectively. Effective for fiscal year 1999, the Company
modified its retail distribution strategy to better match its sell of consumer
CD-ROM products to distributors with the sell-through at the retail level. Net
sales of the large business segment for the six months ended June 30, 1999 were
$47.1 million, a 2% increase from $46.1 million from the same period in 1998.
The Company recorded net sales of data processing services of $28.1 million
during the six months ended June 30, 1999, compared to $28.8 million during the
same period in 1998. During late 1998, a significant data processing services
customer notified the Company that it intended to perform the same processing
in-house. The customer represented 6% of total net sales during fiscal year
1998. During the first quarter of 1999, the customer transferred a significant
portion of the business in-house. The decrease in net sales of data processing
services related to the loss of this customer was offset by two factors: the
acquisition of Walter Karl in March 1998, and increased sales of data processing
services by the Company's National Accounts sales force.
DATABASE AND PRODUCTION COSTS
Database and production costs for the quarter ended June 30, 1999 were $17.1
million, or 30% of net sales, compared to $16.1 million, or 26% of net sales,
for the same period in 1998. For the six months ended June 30, 1999, these costs
were $33.3 million, or 30% of net sales, compared to $31.5 million, or 27% of
net sales for the same period in 1998. Since 1996, database and production costs
have increased as a percentage of sales as a result of higher costs associated
with data processing services, CD-ROM production, and list brokerage services.
To the extent that data processing and list brokerage services constitute a
greater percentage of net sales, the Company expects database and production
costs to increase as a percentage of net sales. Factors contributing to the
increase in database and production costs as a percentage of net sales include
an overall increase in list brokerage and data processing services sales and the
addition of consumer database compilation costs associated with the Company's
roll-out of the consumer white pages file during the second quarter of 1998. The
overall increase in database and production costs was partially offset by the
decrease in consumer CD-ROM retail distribution sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the quarter ended June 30, 1999
were $23.8 million, or 41% of net sales, compared to $27.1 million, or 44% of
net sales, for the same period in 1998. For the six months ended June 30, 1999,
these costs were $46.1 million, or 41% of net sales, compared to $50.5 million,
or 43% of net sales for the same period in 1998. During the six months ended
June 30, 1999, the Company focused on the reduction of expenses, successfully
completing a cost reduction program implemented during the third quarter of
1998. The principal factor contributing to the overall decrease in selling,
general and administrative expenses in both actual amounts and percentages of
net sales for the three and six month periods ended June 30, 1999 from the same
periods in 1998 relates to the decrease in salaries and wages. The number of
total employees has reduced from approximately 2,050 employees as of June 30,
1998 to 1,575 employees as of June 30, 1999.
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DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses for the quarter ended June 30, 1999 were
$5.7 million, or 10% of net sales, compared to $6.4 million, or 10% of net sales
for the same period in 1998. For the six months ended June 30, 1999, these costs
were $11.7 million, or 10% of net sales, compared to $13.3 million, or 11% of
net sales for the same period in 1998. Amortization of acquired database costs
and purchased data processing software associated with the acquisition of DBA in
February 1997 totaled $0.4 million and $3.9 million during the six months ended
June 30, 1999 and 1998, respectively.
ACQUISITION-RELATED AND RESTRUCTURING CHARGES
For 1998, in addition to the write-off of purchased in-process research and
development costs (purchased IPR&D) of $3.8 million recorded in connection with
the acquisition of Walter Karl in March 1998, included in acquisition-related
and restructuring charges in the accompanying consolidated statement of
operations are: $3.0 million of costs associated with the Company's bid to
acquire Metromail Corporation, $0.7 million associated with the Company's
offering to sell Class A Common Stock which was not completed, and $1.4 million
for restructuring costs related to the Company's compilation and sales
activities for new businesses enacted during the first quarter of 1998 further
described below.
RESTRUCTURING CHARGES
During the first quarter of 1998 the Company recorded a restructuring charge of
$1.4 million related to the closing of the CDC new business compilation and
sales center and moving these operations from Vermont to Nebraska. All 45 of the
CDC employees were terminated, and severance recorded totaled $0.6 million. The
restructuring charges also included lease termination costs of $0.3 million and
a write-off of $0.5 million of leasehold improvement costs associated with the
closed Vermont facility. The restructuring, including recording the payments and
write-downs described, was completed by September 30, 1998.
OPERATING INCOME
Including the factors previously described, the Company had operating income of
$11.0 million, or 19% of net sales for the quarter ended June 30, 1999, as
compared to operating income of $12.1 million, or 19% of net sales for the same
period in 1998. For the six months ended June 30, 1999, operating income was
$22.0 million, or 19% of net sales, compared to $13.3 million, or 11% of net
sales for the same period in 1998.
OTHER INCOME (EXPENSE), NET
Other income (expense), net was $(1.2) million, or (2)% of net sales, and $13.2
million, or 21% of net sales, for the quarter ended June 30, 1999 and 1998,
respectively, and $(1.9) million, or (1)% of net sales, and $13.0 million, or
11% of net sales, for the six months ended June 30, 1999 and 1998, respectively.
Interest expense was $2.9 million and $1.9 million for the quarter ended June
30, 1999 and 1998, respectively, and $6.0 million and $3.1 million for the six
months ended June 30, 1999 and 1998, respectively. The increase in interest
expense is principally the result of servicing debt under the Company's 9 1/2%
Senior Subordinated Notes Due 2008 which were issued in June 1998.
Investment income was $1.7 million and $15.1 million for the quarter ended June
30, 1999 and 1998, respectively, and $4.2 million and $16.1 million for the six
months ended June 30, 1999 and 1998, respectively. The Company recorded realized
gains on the sale of marketable securities totaling $1.3 million and $16.6
million for the quarters ended June 30, 1999 and 1998, respectively, and $3.4
million and $17.6 million for the six months ended June 30, 1999 and 1998,
respectively. During the second quarter of 1998, the Company realized a gain of
$16.5 million on the disposition of its holdings in Metromail Corporation common
stock. This realized gain was partially offset during the second quarter of 1998
when the Company recorded a loss of $2.0 million on the write-off of an
investment. During the first quarter of 1997, the Company made an investment of
$2.0 million in preferred stock of an issuer, representing less than 20% of the
issuer's outstanding stock. During 1998 the issuer commenced a reorganization
and sought funding from other outside investors, diluting the Company's
investment in this entity to a nominal value. Additionally, the Company obtained
knowledge that the issuer was incurring significant losses and the intended line
of business of this start-up entity had significantly changed. Accordingly, the
Company wrote-off this investment, which was accounted for on a cost basis,
during the second quarter of 1998.
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INCOME TAXES
A provision for income taxes of $4.1 million and $10.0 million was recorded for
the quarter ended June 30, 1999 and 1998, respectively, and $8.2 million and
$12.0 million for the six months ended June 30, 1999 and 1998, respectively.
Acquisition-related charges of $3.8 million were included in income before
income taxes for the six months ended June 30, 1998, but are not deductible for
tax purposes. The provisions for these periods also reflect the inclusion of
amortization on certain intangibles in taxable income not deductible for tax
purposes.
EXTRAORDINARY ITEM, NET OF TAX
During the first quarter of 1999, the Company repurchased $9.0 million of its 9
1/2% Senior Subordinated Notes (the "Notes"). In connection with the repurchase
of the Notes, the Company recorded a gain of $0.1 million, net of deferred
financing costs of $0.4 million written-off in proportion to the face amount of
Notes purchased and retired.
EBITDA, AS ADJUSTED
Excluding acquisition-related and restructuring charges previously described,
the Company's EBITDA, as adjusted, was $16.7 million, or 29% of net sales, and
$18.9 million, or 30% of net sales, for the quarter ended June 30, 1999 and
1998, respectively, and $33.7 million, or 30% of net sales, and $35.5 million,
or 30% of net sales, for the six months ended June 30, 1999 and 1998,
respectively.
YEAR 2000 READINESS DISCLOSURE
In 1996 the Company began preparing its computer-based systems for Year
2000 ("Y2K") computer software compliance. The Company's Y2K project covers both
traditional computer based systems and infrastructure ("IT Systems") and
computer based facilities and equipment ("Non IT Systems"). The Company's
project has seven phases: Inventory, Assessment, Detailed Planning & Solution
Design, Renovation, Testing, Implementation and Contingency Planning.
The Company has completed an inventory and assessment of its IT Systems.
Some of these systems are fully compliant, while others require fixes to be
applied. The Company expects to correct the remaining non-compliant IT Systems
by replacing or correcting them as a part of a larger infrastructure improvement
effort. Infrastructure improvements are ongoing and will continue throughout
1999. The Company has completed an inventory and assessment of its NON-IT
Systems, some of which will be affected by the millennium rollover. Not all
affected systems require fixes; some are inconsequential or have nuisance
affects and will not be addressed. The Company expects to replace critical
non-compliant NON-IT Systems by the end of the year.
The Company's Y2K project also considers the readiness of critical vendors.
The Company believes that the most reasonable likely worst case Y2K scenario is
that a small number of vendors will be unable to supply goods for a short time
after January 1, 2000. Contingency plans are being developed in the event that
critical vendors suffer from Y2K problems from their internal systems or their
suppliers systems. Although these plans are yet to be completed, the Company
expects that these plans may include a combination of actions including
stockpiling of goods and selective resourcing of business to Y2K compliant
vendors.
The Company has incurred approximately $4.5 million of Y2K cost. These
costs fall into three categories: 1) systems replacement, 2) specific Y2K
assessment effort, and 3) expense cost of Y2K Project office. Future expenses
are estimated to include approximately $1.5 million of additional cost.
Additionally, the Company is in the process of specifically replacing its
accounts receivable accounting system at a total cost of approximately $3.5
million. The replacement of this system, which will be capitalized as a property
addition, assists in the remediation of certain Y2K issues. These future costs
are expected to be primarily replacement system costs. Such cost estimates are
based upon presently available information and may change as the Company
continues with its Y2K project. The Company anticipates paying for its Y2K
compliance plan from operating cash flows.
The above discussion regarding costs, risks and estimated completion dates
for Y2K compliance is based on the Company's best estimates given information
that is currently available, and is subject to change. Actual costs may
substantially exceed the Company's assessment due to unanticipated Y2K problems
associated with the Company's IT and non-IT systems and products. Further,
failure of the Company's vendors and customers to address Y2K problems in a
timely manner may have a greater adverse affect on the Company's business than
presently expected.
The foregoing information constitutes "Year 2000 Readiness Disclosure"
within one meaning for the Year 2000 Informant Readiness Disclosure Act of 1998.
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ACCOUNTING STANDARDS
Statement of Financial Accounting Standard (SFAS) No. 133 "Accounting for
Derivative Instruments and Hedging Activities" was issued in June of 1998. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity recognize all
derivatives either assets or liabilities in the statement of financial position
and measure those instruments at fair value. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. The Company
anticipates adopting this accounting pronouncement in 2000; however, management
believes it will not have a significant impact on the Company's consolidated
financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Statements of Cash Flows Information:
As of June 30, 1999, the Company's principal sources of liquidity included cash
and cash equivalents of $38.5 million and marketable securities with a fair
market value of $15.3 million. As of June 30, 1999, the Company had working
capital of $73.6 million.
During July 1999, the Company negotiated a new credit facilities arrangement
which provided for a revolving credit facility of $30.0 million. See footnote 6.
"Subsequent Events" of the notes to the accompanying consolidated financial
statements for additional information.
Net cash provided by operating activities during the six month period ended June
30, 1999 totaled $16.9 million, compared to net cash used in operating
activities of $1.8 million during the comparable period of 1998.
During the six month period ended June 30, 1999, the Company spent $2.3 million
for additions of property and equipment and $3.0 million related to internal
software development costs.
Consolidated Balance Sheets information:
List brokerage trade accounts receivable decreased from $17.8 million at
December 31, 1998 to $11.2 million at June 30, 1999. List brokerage trade
accounts payable decreased from $18.8 million at December 31, 1998 to $12.2
million at June 30, 1999. The balance of list brokerage trade accounts
receivable and list brokerage trade accounts payable may fluctuate significantly
and is dependent on the specific timing of cash receipts and disbursements.
Total accrued expenses decreased from $12.5 million at December 31, 1998 to $5.0
million at June 30, 1999 principally due to the payment of $4.6 million to
Experian Information Solutions, Inc. during the first quarter of 1999 in
connection with arbitration of a contractual dispute and due to a purchase price
adjustment related to the acquisition of Walter Karl of $1.3 million recorded
during the first quarter of 1999.
Long-term debt decreased from $126.7 million at December 31, 1998 to $118.5
million at June 30, 1999 principally due to the Company's repurchase of $9.0
million of its infoUSA 9 1/2% Senior Subordinated Notes during the first quarter
of 1999. See "Factors That May Affect Operating Results--Effects of Leverage"
for details regarding additionsl debt incurred by the Company in July 1999.
Treasury stock increased from $3.0 million at December 31, 1998 to $9.4 million
at June 30, 1999 principally due to the purchase in the open market of 1.1
million shares of common stock during the first quarter of 1999 at a total cost
of $6.6 million.
The Company believes that its existing sources of liquidity and cash generated
from operations, assuming no major acquisitions, will satisfy the Company's
projected working capital and other cash requirements for at least the next 12
months. To the extent the Company experiences growth in the future, the Company
anticipates that its operating and investing activities may use cash. Any such
future growth and any acquisitions of other technologies, products or companies
may require the Company to obtain additional equity or debt financing, which may
not be available or may be dilutive.
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FACTORS THAT MAY AFFECT OPERATING RESULTS
INTEGRATION OF RECENT AND FUTURE ACQUISITIONS
Since mid-1996, the Company has completed nine significant acquisitions,
including the August 1996 acquisition of Digital Directory Assistance, the
November 1996 merger with County Data Corporation and acquisition of Marketing
Data Systems, the December 1996 acquisition of BJ Hunter, the February 1997
merger with Database America ("DBA"), the August 1997 acquisition of Pro CD, the
March 1998 acquisition of Walter Karl, the June 1998 acquisition of JAMI
Marketing and the July 1999 acquisition of Donnelley Marketing, Inc.
("Donnelley"). The acquisition of Donnelley was extremely significant, with
consideration paid by the Company totaling $200.0 million, funded using a
combination of existing cash and cash borrowed under new senior secured credit
facilities. The Company also made a number of other acquisitions in prior
periods. In March 1998, the Company attempted to acquire Metromail Corporation
("Metromail") for approximately $850.0 million, including the assumption of
debt, and may in the future evaluate other acquisitions of that magnitude. The
Company's strategy includes continued growth through acquisitions of
complementary products, technologies or businesses, which, if implemented, may
result in the diversion of management's attention from the day-to-day operations
of the Company's business and may include numerous other risks, including
difficulties in the integration of operations, databases, products and
personnel, difficulty in applying the Company's internal controls to acquired
businesses and particular problems, liabilities or contingencies related to the
businesses being acquired. To the extent that efforts to integrate recent or
future acquisitions fail, there could be a material adverse effect on the
Company's business, financial condition and results of operations. While the
Company has not made any binding commitments with respect to any particular
future acquisitions, the Company frequently evaluates the strategic
opportunities available to it and intends to pursue opportunities that it
believes fit its business strategy.
RECENT CHANGES IN SENIOR MANAGEMENT
In the past two years, the Company has undergone significant changes in its
senior management team, even as it has experienced growth both internally and
through acquisitions. The Company hired a number of senior managers in September
and October 1997, who ceased their employment with the Company between July and
September 1998. These managers did not resign because of any disagreements with
the Company's Board or other senior management, and much of the Company's
remaining senior management team has been with the Company for many years.
During 1999, the Company made two significant senior management team additions.
Susan Henricks was appointed to Executive Vice President in August 1999. Ms.
Henricks previously served as managing director of client development for First
Data Corporation, and as President and Chief Executive Officer of Metromail
Corporation. Jack McGovern was appointed Chief Financial Officer in July 1999.
The Company is currently organized into three major sales groups headed by group
presidents. Al Ambrosino, who has been with the Company or its subsidiary for 19
years, DJ Thayer, who has been with the Company for 8 years, and William Chasse,
who has been with the Company for 11 years, have each been named group
president. In the past, limitations on senior management resources resulted in a
few key individuals taking on multiple roles and responsibilities in the
Company, which in turn placed a significant strain on the Company's senior
management. Failure of Company's senior management to adjust to new
responsibilities, manage growth or work together effectively could result in
disruptions of operations or the departure of additional key personnel, which in
turn could have a material adverse effect on the Company's business, financial
condition, results of operations and stock price.
FLUCTUATIONS IN OPERATING RESULTS
The Company believes that future operating results will be subject to
quarterly and annual fluctuations, and that long term growth will depend upon
the Company's ability to expand its present business and complete strategic
acquisitions. The Company's net sales on a quarterly basis can be affected by
seasonal characteristics and certain other factors. For example, the Company
typically experiences higher revenue from its sales leads products in the fall
of each year due to increases in direct marketing by the Company's clients in
the fourth quarter of each year. Revenue from sales lead generation products is
generally lower in the summer due to decreased direct marketing activity of the
Company's customers during that time. The Company typically experiences
decreases in net sales of consumer CD ROM products just prior to the
introduction of new editions of these products. This effect, coupled with the
changes in estimates outlined below, resulted in a decline in consumer CD ROM
net sales in the three months ended September 30, 1998 compared to the prior
year period and the three months ended June 30, 1998. In addition, cancellation
of a major data processing contract in the three months ended September 30, 1998
resulted in lower than expected net sales of data processing services in that
period. The Company's operating expenses are determined in part based on the
Company's expectations of future revenue growth and are substantially fixed. As
a result, unexpected changes in revenue levels, such as those discussed above,
have a disproportionate effect on operating performance in any given period. In
addition, changes in estimates for increased reserves and allowances, the
provision of an arbitration reserve and charges related to cost-cutting in the
three months ended September 30, 1998 amounted to a
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total of $21.4 million in charges in that period. These charges and the weakness
of net sales discussed above caused the Company to record a net loss of $13.4
million for the three months ended September 30, 1998, and lower than expected
net income for the fiscal year. If the Company is required to record charges in
the future, such charges could materially and adversely affect the Company's
business, financial condition or results of operations. Long term growth will be
materially adversely affected if the Company fails to successfully exploit the
Internet as a market for its products and services, broaden its existing product
and service offerings, increase sales of products and services, expand into new
markets, or complete acquisitions or successfully integrate acquired operations
into its existing operations. To the extent there are fluctuations in operating
results or the Company fails to achieve long-term internal growth or growth
through acquisitions, there could be a material adverse effect on the Company's
business, financial condition or results of operations.
RISK OF PRODUCT RETURNS
The Company has agreements that allow retailers certain rights to return
its consumer CD-ROM products. Accordingly, the Company is exposed to the risk of
product returns from retailers and distributors, particularly in the case of
products sold shortly before introduction of the next year's edition of the same
product. Consumers may also seek to return consumer CD-ROM products, although
historically returns from consumers have been low. At the time of product sales,
the Company establishes reserves based on estimated future returns of products,
taking into account promotional activities, the timing of new product
introductions, seasonal variations in product returns, distributor and retailer
inventories of the Company's products and other factors. Actual product returns
could differ from estimates, and product returns that exceed the Company's
reserves could materially adversely affect the Company's business, financial
condition and results of operations. In addition, changes in estimates of
reserves for product returns can have a material and adverse effect on the
Company's operating results. For example, as discussed above, changes in
estimates for increased reserves and allowances in the consumer CD-ROM business,
primarily to account for anticipated returns and price protection adjustments,
together with additions to other reserves, amounted to charges of approximately
$15.5 million in the three months ended September 30, 1998 (out of the $21.4
million in charges discussed above), contributing to the Company's net loss for
that period.
EFFECTS OF LEVERAGE
As of June 30, 1999, the Company had total indebtedness of approximately
$118.5 million, including $106.0 million of Notes under an indenture under which
State Street Bank and Trust Co. of California is trustee (the "Indenture"). The
Indenture permits the Company to incur substantial additional indebtedness
(including, subject to certain conditions, an additional $85.0 million of senior
subordinated notes under the Indenture).
In July 1999, in connection with the acquisition of Donnelley, the Company
incurred additional indebtedness of $165.0 million under a $195.0 million Senior
Secured Credit Agreement under which Bank Boston, N.A. acts as administrative
agent for a group of lenders. Substantially all assets of the Company are
pledged as security under the terms of the Credit Agreement.
The Company's ability to pay principal and interest on the Notes issued
under the Indenture and the Credit Agreement and to satisfy its other debt
obligations will depend upon its future operating performance, which performance
will be affected by prevailing economic conditions and financial, business and
other factors, certain of which are beyond the control of the Company. The
Company's ability to pay principal and interest on the Notes issued under the
Indenture and to satisfy its debt obligations other than in connection with the
Credit Agreement may also depend upon the future availability of revolving
credit borrowings under the Credit Agreement. Such availability will depend on,
among other things, the Company's ability to meet certain specified financial
ratios and maintenance tests. The Company expects that, based on current and
expected levels of operations, its operating cash flow should be sufficient to
meet its operating expenses, to make necessary capital expenditures and to
service its debt requirements as they become due. If the Company is unable to
service its indebtedness, it will be forced to take actions, such as reducing or
delaying acquisitions and/or capital expenditures, selling assets, restructuring
or refinancing its indebtedness (including the Notes issued under the Indenture
and the Credit Agreement) or seeking additional equity capital. There is no
assurance that any of these remedies could be effected on satisfactory terms, if
at all.
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Company's existing debt obligations, including the Notes issued under
the Indenture and the Credit Agreement, contain certain covenants limiting,
subject to certain exceptions, the incurrence of indebtedness, payment of
dividends or other restricted payments, issuance of guarantees, entering into
certain transactions with affiliates, consummation of certain asset sales,
certain mergers and consolidations, sales or other dispositions of all or
substantially all of the assets of the Company and imposing restrictions on the
ability of a subsidiary to pay dividends or make certain payments to the Company
and its subsidiaries. The Company's ability to
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comply with such covenants may be affected by events beyond its control. A
breach of any of these covenants could result in an event of default under the
terms of the Company's existing debt obligations. Upon the occurrence of an
event of default, the lenders under these debt obligations could elect to
declare all amounts outstanding, together with accrued interest, to be
immediately due and payable. If the payment of any such indebtedness is
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full any such indebtedness and the other indebtedness of
the Company. Moreover, if the Company were unable to repay amounts owed to the
lenders under the Credit Agreement, such lenders could proceed against the
collateral granted to them to secure that indebtedness.
RISKS ASSOCIATED WITH CHANGES IN TECHNOLOGY
Advances in information technology may result in changing customer
preferences for products and product delivery formats in the business and
consumer marketing information industry. The Company believes it is presently
the leading provider of marketing information on CD-ROM. However, the Company's
sales of CD-ROM's in the quarter ended September 30, 1998 were lower than
expected by the Company and projected by financial analysts. In addition, the
Company believes that if customers increasingly look to digital video disc
("DVD") or other new technology for information resources, the market for
business and consumer information on CD-ROM may contract and prices for CD-ROM
products may have to decrease or CD-ROM products may become obsolete. The
Company plans to introduce products on DVD. Failure of the Company to improve
sales of CD-ROM products or to successfully sell its products on DVD or to
successfully introduce products that take advantage of other technological
changes may thus have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company believes that the Internet represents an important and rapidly
evolving market for marketing information products and services. As such, the
Company has recently begun to focus more heavily on the Internet, and to develop
plans to exploit its new market more fully in the future. The Company may fail
to develop product and services that are well adapted to the Internet market, to
achieve market acceptance of its products and services, to achieve sufficient
traffic to its Internet sites to generate significant net sales, or to
successfully implement electronic commerce operations. Any such failure could
have a material adverse effect on the Company's business, financial condition
and results of operations.
COMPETITION
The business and consumer marketing information industry is highly
competitive. Many of the Company's principal or potential future competitors are
much larger than the Company and have much larger capital bases from which to
develop and compete with the Company. The Company faces increasing competition
in consumer sales lead generation products and data processing services from
Great Universal Stores, P.L.C. ("GUS") as a result of GUS' recent acquisitions
of Experian, Direct Marketing Technologies and Metromail. In business sales lead
generation products, the Company faces competition from Experian and Dun's
Marketing Services ("DMS"), a division of Dun & Bradstreet. DMS, which relies
upon information compiled from Dun & Bradstreet's credit database, tends to
focus on marketing to large companies. In business directory publishing, the
Company competes primarily with Regional Bell Operating Companies and many
smaller, regional directory publishers. In consumer sales lead generation
products, the Company competes with Acxiom, R.L. Polk, Experian and Equifax,
both directly and through reseller networks. In data processing services, the
Company competes with Acxiom / May & Speh, Experian, Direct Tech, Snyder
Communications, Inc. and Harte-Hanks Communications, Inc. In consumer products,
the Company competes with certain smaller producers of CD-ROM products. In
addition, the rapid expansion of the Internet creates a substantial new channel
for distributing business information to the market, and a new avenue for future
entrants to the business and consumer marketing information industry. There is
no guarantee that the Company will be successful in this new market.
LOSS OF DATA CENTERS
The Company's business depends on computer systems contained in the
Company's data centers located in Omaha, Nebraska, Carter Lake, Iowa and
Montvale, New Jersey. A fire or other disaster affecting any of the Company's
data centers could disable the Company's computer systems. Any significant
damage to any of the data centers could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is in the process of relocating certain operations located on
the east coast. The Company is relocating certain personnel between the Montvale
and Greenwich facilities, and is also going to relocate certain personnel from
the Montvale and Greenwich sites to a new location in Park Ridge, New Jersey.
Any disruptions to operations or loss of data or equipment in connection with
these moves could materially and adversely affect the Company's business,
financial condition or results of operations.
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LIMITED PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company regards its databases and software as proprietary. The
Company's databases are copyrighted, and the Company depends on trade secret and
non-disclosure safeguards for protection of its software. The Company
distributes its products under agreements that grant customers a license to use
the Company's products for specified purposes and contain terms and conditions
prohibiting the unauthorized reproduction and use of the Company's products. In
addition, the Company generally enters into confidentiality agreements with its
management and programming staff and limits access to and distribution of its
proprietary information. There can be no assurance that the foregoing measures
will be adequate to protect the Company's intellectual property.
RESTATEMENT OF FINANCIAL RESULTS
The 1995 financial statements were restated in 1997 to reflect a settlement
of an employee's stock options as compensation expense due to additional
information obtained regarding the nature and timing of the agreement to settle
the options. The 1995 financial statements were also restated to reflect an
increase to receivable reserves of $0.6 million as selling, general and
administrative expenses. The restatements decreased net income by $2.3 million
and earnings per share by $0.06 in 1995 and had no impact on net sales. The 1995
and 1996 financial statements were restated to properly present the discontinued
operations of American Business Communications (ABC). Since ABC was sold in
exchange for a non-recourse promissory note, the Company had not relinquished
all risks of ownership and was required to reflect the continued losses of the
business in its financial statements. These restatements did not impact net
sales, net income or earnings per share for either 1995 or 1996. Due to the
unique circumstances involved, the Company had misinterpreted the accounting
rules related to the "sale" and re-addressed the accounting when the purchaser
defaulted on the note.
The Form 10-Q for the quarter ended March 31, 1997 was restated to
accurately account for the acquisition of DBA and the related IPR&D charge as a
result of receiving a final valuation report. The restatement increased net
income and earnings per share by $18.2 million and $.79, respectively for the
quarter ended March 31, 1997 and had no impact on net sales. The Company uses
its best estimates based on information available related to acquisitions when
filing its interim financial statements. However, estimates change as additional
information is obtained during the valuation process.
The Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and
September 30, 1998 were restated to accurately account for the acquisition of
Walter Karl and the related IPR&D charge as a result of receiving a valuation
report reflecting the retroactive application of the Securities and Exchange
Commission's new guidelines for valuing purchased IPR&D. During the first
quarter of 1998, the Company had originally recorded an IPR&D charge of $9.2
million. During the fourth quarter of 1998, the Company performed a new
valuation following the new guidance and the IPR&D charge was adjusted to $3.8
million.
DIRECT MARKETING REGULATION AND DEPENDENCE UPON MAIL CARRIERS
The Company and many of its customers engage in direct marketing. Certain
data and services provided by the Company are subject to regulation by federal,
state and local authorities. In addition, growing concerns about individual
privacy and the collection, distribution and use of information about
individuals have led to self-regulation of such practices by the direct
marketing industry through guidelines suggested by the Direct Marketing
Association and to increased federal and state regulation. Compliance with
existing federal, state and local laws and regulations and industry
self-regulation has not to date had a material adverse effect on the Company's
business, financial condition or results of operations. Nonetheless, federal,
state and local laws and regulations designed to protect the public from the
misuse of personal information in the marketplace and adverse publicity or
potential litigation concerning the commercial use of such information may
increasingly affect the operations of the Company, which could result in
substantial regulatory compliance or litigation expense or a loss of revenue.
Certain proposed federal legislation could also create proprietary rights in
certain "white pages" information that is presently in the public domain, which
could in turn increase the cost to the Company of acquiring data or disrupt its
ability to do so. The direct mail industry depends and will continue to depend
upon the services of the United States Postal Service and other private mail
carriers. Any modification by the United States Postal Service of its rate
structure, any increase in public or private postal rates generally or any
disruption in the availability of public or private postal services could have a
negative impact on the demand for business information, direct mail activities
and the cost of the Company's direct mail activities.
FINANCIAL AND ACCOUNTING ISSUES RELATED TO ACQUISITIONS
In connection with the acquisitions completed since mid-1996, the Company
issued approximately 3.7 million shares of Class A Common Stock and 3.7 million
shares of Class B Common Stock, and paid approximately $158.4 million in cash.
The issuance of stock in these or future transactions may be dilutive to
existing stockholders to the extent that earnings of the acquired companies do
20
<PAGE> 21
not offset the additional number of shares outstanding. In connection with the
acquisitions of DBA, Pro CD and Walter Karl, the Company incurred approximately
$97.0 million in debt. In connection with the acquisition of Donnelley, the
Company incurred approximately $165.0 million in debt. In connection with future
acquisitions, the Company may incur substantial amounts of debt. Servicing such
debt may result in decreases in earnings per share, and the inability on the
part of the Company to service such debt would result in a material adverse
effect on the Company's business, financial condition and results of operations.
Finally, the Company expects that future acquisitions will generally be required
to be accounted for using the purchase method. As a result of such accounting
treatment, the Company may be required to take charges to operations or to
amortize goodwill in connection with future acquisitions. As a result of
acquisitions completed since mid-1996, the Company was required to take
significant acquisition-related charges to operations and will be required to
amortize goodwill and other intangibles over periods of 1 to 15 years. The
acquisition-related charges and amortization of goodwill and other intangibles
have had and will continue to have an adverse effect on net income. To the
extent that future acquisitions result in substantial charges to operations,
incurrence of debt and amortization of goodwill and other intangibles, such
acquisitions could have an adverse effect on the Company's net income, earnings
per share and overall financial condition.
VOLATILITY AND UNCERTAINTIES WITH RESPECT TO STOCK PRICE
As with other companies that have experienced rapid growth, the Company has
experienced and is likely to continue to experience substantial volatility in
its stock price. Factors such as announcements by either the Company or its
competitors of new products or services or of changes in product or service
pricing policies, quarterly fluctuations in the Company's operating results,
announcements of technical innovations, announcements relating to strategic
relationships or acquisitions by the Company or its competitors, changes in
earnings estimates, opinions or ratings by analysts, and general market
conditions or market conditions within the business and consumer marketing
information industry, among other factors, may have significant impact on the
Company's stock price. Should the Company fail to introduce, enhance or
integrate products or services on the schedules expected, its stock price could
be adversely affected. It is likely that in some future quarter the Company will
fail to achieve anticipated operating results, and this failure could have a
material adverse effect on the Company's stock price. While the Company expects
the Class A Common Stock and Class B Common Stock prices to remain roughly equal
in most market conditions, the difference in rights of the two classes, coupled
with the general volatility of the Company's stock price described above, could
cause the Class A Common Stock and Class B Common Stock to trade at different
prices. In the event of a tender offer or other unsolicited attempt to acquire
the Company, shares of Class B Common Stock would likely trade at a substantial
premium to shares of Class A Common Stock as a result of the disparity of voting
rights. Future issuances of both Class A Common Stock and Class B Common Stock
could affect the price for either or both classes of Common Stock. For the
foregoing reasons, the price for the Company's Class A Common Stock and Class B
Common Stock may be subject to substantial fluctuation. The Company has proposed
a recapitalization that would combine the two classes of stock into one class,
however, there is no assessment that such a recapitalization will be
successfully completed.
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a change of control of the Company in certain
circumstances, the Company is required to make an offer to purchase all
outstanding 9 1/2% Senior Subordinated Notes at a purchase price equal to 101%
of the principal amount thereof, together with accrued and unpaid interest, if
any, to the date of purchase. There can be no assurance that the Company will
have available funds sufficient to purchase the notes upon such change of
control. In addition, any change of control, and any repurchase of the notes
upon a change of control, may constitute an event of default under any revolving
credit facility which the Company may enter into, and in that event the
obligations of the Company thereunder could be declared due and payable by the
lenders thereunder. Upon the occurrence of an event of default, the lenders
under such a credit facility may have the ability to block repurchases of the
Notes for a period of time and upon any acceleration of the obligations under
such a credit facility, the lenders thereunder would be entitled to receive
payment of all outstanding obligations thereunder before the Company may
repurchase any of the notes tendered pursuant to an offer to repurchase the
notes upon such change of control.
21
<PAGE> 22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no changes in market risks since fiscal yearend 1998.
22
<PAGE> 23
infoUSA INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1999
PART II
OTHER INFORMATION
23
<PAGE> 24
infoUSA INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1999
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 1999 Annual Meeting of Stockholders of the Company held on May 2, 1999,
the stockholders voted and approved the following items:
1. Elected the following directors to the Board of Directors for a term of three
years.
Paul Goldner
FOR: 191,643,586 WITHHOLD AUTHORITY: 4,348,079
Ben Nelson
FOR: 191,645,864 WITHHOLD AUTHORITY: 4,345,801
George Kubat
FOR: 191,600,764 WITHHOLD AUTHORITY: 4,390,901
2. The stockholders voted to amend to the 1997 Class A Common Stock Option Plan
reserving an additional 3,000,000 shares of the Company's Common Stock for
issuance thereunder.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FOR: 139,299,819 AGAINST: 32,305,782 ABSTAIN: 247,193 NON-VOTES: 24,138,871
</TABLE>
3. The stockholders also ratified the appointment of KPMG Peat Marwick LLP as
the Company's independent auditors to examine the financial statements of the
Company for the fiscal year 1999.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
FOR: 195,895,738 AGAINST: 75,937 ABSTAIN: 19,900 NON-VOTES: 0
</TABLE>
ITEM 5. OTHER MATTERS
On June 23, 1999, the Company announced the appointment of Jack J. McGovern to
Chief Financial Officer effective July 1, 1999.
On July 8, 1999, the Company announced the appointment of Susan Henricks to
Executive Vice President effective August 1, 1999.
On July 26, 1999, George Kubart resigned from his postion as a president at
the Company's Board of Directors and Charles Fote was appointed to take his
place.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT NO. DESCRIPTION
10.1(1) Amended and Restated Database License Agreement
between Donnelley Marketing, Inc. and First Data
Resources, Inc. dated as of July 23, 1999.
10.2(1) Covenant not to compete by First Data Corporation
to infoUSA Inc. dated as of July 23, 1999.
10.3 Option Agreement by and among infoUSA Inc. and First
Data Corporation dated as of July 23, 1999.
27 Financial Data Schedule
(b) Report on Form 8-K
Effective May 28, 1999, the Company filed a Current Report on Form 8-K
related to the acquisition of Donnelley Marketing, Inc.
24
<PAGE> 25
S I G N A T U R E S
-------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
infoUSA INC.
Date: August 16, 1999 /S/ VINOD GUPTA
-----------------------------------------
Vinod Gupta, Chief Executive Officer and
Chairman of the Board
/S/ JACK J. MCGOVERN
-----------------------------------------
Jack J. McGovern, Chief Financial Officer
(principal financial officer)
25
<PAGE> 26
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1(1) Amended and Restated Database License Agreement between
Donnelley Marketing, Inc. and First Data Resources, Inc.
dated as of July 23, 1999.
10.2(1) Covenant not to compete by First Data Corporation to infoUSA
Inc. dated as of July 23, 1999.
10.3 Option Agreement by and among infoUSA Inc. and First Data
Corporation dated as of July 23, 1999.
27 Financial Data Schedule
</TABLE>
- --------------------
(1) infoUSA Inc. has requested confidential treatment for the redacted portions
of these Exhibits.
26
<PAGE> 1
EXHIBIT 10.1
CERTAIN CONFIDENTIAL INFORMATION IN
THIS EXHIBIT DENOTED BY ASTERISKS
HAS BEEN REDACTED PURSUANT TO
17 C.F.R. SUBSECTION 200.80(b)(4),
200.83 AND 240.24b-2
AMENDED AND RESTATED DATABASE LICENSE AGREEMENT
between
DONNELLEY MARKETING, INC.
and
FIRST DATA RESOURCES INC.
dated as of July , 1999
---
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Parties .............................................................................1
Recitals.............................................................................1
Terms of Agreement...................................................................1
Article I: Definitions....................................................1
1.0 Defined Terms................................................1
Article II: Grant..........................................................7
2.0 Terms of Grant...............................................7
2.1 New Data.....................................................9
2.2 Licensor's Reserved Rights...................................9
2.3 Data for the Licensor.......................................10
2.4 Certain Rights of First Refusal.............................10
2.6 Customer Contracts..........................................11
Article III: Royalty and Other License Payments............................12
3.0 Royalties...................................................12
3.1 Payments....................................................13
3.2 Audit.......................................................13
3.3 Discrepancy.................................................14
3.4 Financial Representation....................................15
Article IV: Termination...................................................15
4.0 Early Termination. .........................................15
4.1 Termination by Licensee. ...................................15
Article V: Updating, Delivery and Format; Certain Security Matters.......15
5.0 Updating and Quality........................................15
5.1 Delivery and Format.........................................16
5.2 Reasonable Security Measures................................16
5.3 Destruction Following Updates...............................17
Article VI: Licensor's Warranty; Limitation of Liability..................17
Article VII: Licensee's Warranties.........................................18
Article VIII: Taxes.........................................................19
Article IX: Uncontrollable Events.........................................19
Article X: Title to Licensor Database and Information....................19
Article XI: Restrictions..................................................20
11.0 Statutory and Other Restrictions on Use.....................20
11.1 Restricted Access...........................................21
11.2 No Use of Marks.............................................21
Article XII: Warranty of Title; Indemnification............................22
12.0 Compilation.................................................22
12.1 Ownership/Authorization.....................................22
Article XIII: Confidentiality...............................................23
13.0 Databases...................................................23
13.1 Back-Up Copies..............................................23
13.2 Cooperation.................................................24
Article XIV: Indemnification; Damages......................................24
14.0 General.....................................................24
14.1 Notice and Resolution of Claim..............................25
14.2 Damages.....................................................25
Article XV: Independent Contractors.......................................26
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
Article XVI: Assignment...................................................26
Article XVII: Notices......................................................27
Article XVIII: Arbitration..................................................28
18.0 Mandatory Arbitration; Exceptions..........................28
18.1 Forum......................................................28
18.2 Additional Procedure.......................................28
Article XIX: Governing Law................................................31
Article XX: Severance....................................................31
Article XXI: Complete Agreement...........................................31
Article XXII: Waiver.......................................................31
Article XXIII: Parties......................................................31
Article XXIV: Equitable Relief.............................................32
Article XXV: Implied Obligation Disclaimed................................32
Article XXVI: License Notice Matters.......................................32
Execution...........................................................................34
</TABLE>
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<PAGE> 4
ATTACHMENTS
<TABLE>
<S> <C>
Appendix I Types of Data
Schedule A Cost of Living Adjustment
Schedule B Specific Restrictions Relating to Fair Credit Reporting Act
Exhibit 2.0 Excluded Entities
Exhibit 2.6-1 Form of Letter of Intent Prior to Entering Into Customer
Contract
Exhibit 2.6-2 Form of Customer Contract
Exhibit 5.0 Description of Scope and Quality of Database
Exhibit 6.0 Gross Revenues
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED DATABASE LICENSE AGREEMENT
PARTIES
This Amended and Restated Database License Agreement (together with
its appendices and schedules, this "AGREEMENT") is entered into as of July ___,
1999, between Donnelley Marketing, Inc., a Delaware corporation with its
principal office at 2800 Post Oak Blvd., Suite 5700, Houston, TX 77056-6118 (the
"LICENSOR") and First Data Resources Inc., a Delaware corporation with an office
at 2301 North 117th Avenue, Omaha, NE 68164, Inc. (the "LICENSEE").
RECITALS
The parties have entered into that certain Database License Agreement
dated as of July 22, 1993 (the "ORIGINAL LICENSE AGREEMENT"), and the parties
desire to amend and restate the Original License Agreement as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties hereby amend and restate the
Original License Agreement as set forth herein:
TERMS OF AGREEMENT
ARTICLE I: DEFINITIONS
1.0 DEFINED TERMS. Throughout this Agreement, the terms defined
parenthetically and those defined in this Article I shall have the meanings
indicated. Defined terms may be used in the singular or plural.
"AFFILIATE" means, with respect to a party, a person or entity
controlling, controlled by or under common control with, such party, such
control being exercised through the ownership or control, directly or
indirectly, of more than 50% of all of the voting power of the shares or other
interests entitled to vote for the election of directors or other governing
authority, as of the date of this Agreement or hereafter during the Term,
provided that such person or entity shall be considered an Affiliate only for
the time during which such control exists.
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<PAGE> 6
"APPLICATIONS" means any or all Exclusive Permitted Applications and
Permitted Applications.
"BATCH ACCESS" means a method pursuant to which the Customer inputs an
inquiry regarding more than a single business, entity or person, or regarding a
group of businesses, entities or persons, either On-line or by submitting a
tape, cartridge or other storage medium to a Computer, all inquiries are
processed before any response is transmitted to the Customer, and the Customer
receives the response either On-line or by receipt of a tape, cartridge, other
storage medium or print-out.
"COMPUTER" shall have the meaning therefor set forth in the definition
herein of "On-Line".
"CONTRACT YEAR" means a consecutive 12 calendar-month period which
shall begin on the day after the close of the first Contract Year (and on the
successive anniversaries of that day during the Term). The first Contract Year
shall commence on the date of this Agreement and end on the first anniversary of
the date hereof.
"CUSTOMER" means those individuals and entities which use the Licensor
Database for their operations (including, with respect to EDA, making
information from the Licensor Database available to their customers as part of a
directory assistance service) by receiving the Service.
"CUSTOMER CONTRACT" means a contract between the Licensee and the
Customer.
"DATABASE" means any compilation or collection of data including, for
example, the Licensor Database and all Third Party Databases.
"DELIVERY METHODS" means providing the Services to Customers (i)
On-line (whether for access on an Interactive basis or for Batch Access), (ii)
on an Interactive basis, and/or (iii) by Batch Access.
"DESIGNATED FIRM" shall have the meaning therefor set forth in section
3.2.
"DOCUMENTATION" shall have the meaning therefor set forth in section
13.0.
"DQI2 DATABASE" shall have the meaning therefor set forth in Exhibit
5.0.
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<PAGE> 7
"EDA" means electronic telephone directory assistance (which may be
provided through a live operator) pursuant to which a Customer or a customer of
a Customer (through such Customer) requests or inquires on an Interactive basis
about the telephone number(s) of persons or businesses, with such Customer or
customer providing the names and/or addresses of such persons or businesses.
"EXCLUSIVE PERMITTED APPLICATIONS" means, subject to section 2.2, the
Applications described in clauses (i), (ii) and (iii) of the definition of
Permitted Applications; provided, such Applications shall be exclusive only with
respect to those third parties listed on Exhibit 2.0.
"GROSS REVENUES" for any period means the Licensee's gross revenues
for such period in regard to Service transactions (which Service transactions
access or otherwise use the Licensor Database), including without limitation any
Service transactions effected through Third Parties as part of "reseller"
arrangements permitted pursuant to section 2.0 or otherwise, with Customers or
their Affiliates or with Affiliates of the Licensee (or deemed to be received in
connection with Service transactions for the Licensee's own account as set forth
below), including, without limitation, any Service transactions effected during
demonstrations for which the Licensee charges a fee or would be deemed to charge
a fee as set forth below, or in connection with training of Customers or such
Affiliates; provided, however, that Gross Revenues relating to Service
transactions sold by the Licensee (as opposed to by Third Parties pursuant to
reseller arrangements described above) shall exclude all amounts set out
separately on invoices for Services for equipment, telecommunications, tape
handling charges, start-up fees, modem leases, circuit upgrades, installation
charges, manuals, terminal/controller on-line access charges, add/delete option
charges, taxes and similar charges, in each case to the extent such charges are
reasonable and are consistent with current billing practices under the Original
License Agreement (such items, to such extent, "Pass Through Items"); provided,
further, however, that Gross Revenues shall exclude, as an allowance for
doubtful accounts, one percent (1%) of Gross Revenues as otherwise herein
defined relating to Service transactions sold by the Licensee (as opposed to by
Third Parties pursuant to reseller arrangements described above). The term gross
revenues is intended by the parties to have the meaning therefor under generally
accepted accounting principles in the United States of America. The Gross
Revenues resulting from any transactions where the Licensee or any Affiliate of
the
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<PAGE> 8
Licensee would be considered to be the Customer shall be subject to a minimum
attributed value measured on an "arms-length" basis, to be based upon similar
transactions with Customers which are not parties to this Agreement. The Gross
Revenues resulting from Service transactions between a Third Party and a
Customer or Customers where the Licensee or an Affiliate of the Licensee
provides a service or product other than the Service through or to such Third
Party or the Service is provided through such Third Party as a courtesy or
discount, shall be subject to a similar minimum attributed value. The Gross
Revenues resulting from transactions where the Licensee or an Affiliate of the
Licensee provides a service or product other than the Service together with the
Service or as part of arrangements pursuant to which the Service is provided as
a courtesy or at a discount not available generally to Customers, shall (except
as to the Licensor's use of the Service as provided in section 2.2) be subject
to a similar minimum attributed value and similarly, the Gross Revenues
resulting from demonstrations for which the Licensee charges a fee or from
training of Customers or their Affiliates shall be subject to a minimum
attributed value based on charges for such items on an "arms-length" basis;
provided, however, that the Licensee shall be deemed to charge a fee in
connection with any demonstration given to a prospective Customer which
demonstration has a duration of more than one day or which demonstration is not
conducted by an employee of the Licensee.
"INTERACTIVE" means a method pursuant to which a Customer inputs at a
remote location an inquiry regarding a single business, entity or person which
inquiry is sent using telecommunications to a Computer, processed and answered
within seconds by sending the requested data using telecommunications to the
Customer making the inquiry.
"IOCS" means (i) domestic operating telephone companies that are not
RBOCs and (ii) interexchange carriers.
"INTELLECTUAL PROPERTY RIGHTS" means all of the following intellectual
property rights in the United States:
(i) all United States patent rights and all right, title and
interest in all letters patent and applications for letters
patent, industrial models, industrial designs, petty
patents, patents of importation, patents of addition,
utility models, certificates of invention and other
government issued or
-4-
<PAGE> 9
granted indicia of invention ownership including any
reissue, division, continuation or continuation-in-part
applications;
(ii) all United States rights, title and interest in all trade
secrets and trade secret rights arising under the common
law, state law or federal law;
(iii) all United States copyright rights, and all other literary
property and author rights, and all right, title and
interest in all copyrights, copyright registrations,
certificates of copyright and copyrighted interests in the
United States; and
(iv) all United States rights, title and interest in all know-how
and show-how whether or not protectable by patent, copyright
or trade secret law, or as a registered mask work.
"LICENSOR DATABASE" means (i) those portions of the DQI2 Database
which the Licensor owns, from time to time, and (ii) those portions of Third
Party Databases which are embedded in the DQI2 Database as to which the Licensor
has, from time to time, the right to provide to the Licensee in the manner and
for the purposes set out in, and as contemplated by, section 2.0, in each case
which portions consist of the specific types of information set forth in
Appendix I. Without limiting the generality of the foregoing, the Licensor
Database shall include (A) New Data, if any, as contemplated in section 2.1, and
(B) updates and supplements as contemplated in Article V. The references in this
definition to the DQI2 Database, Third Party Databases and New Data shall be
deemed to include all successors of such Databases.
"ON-LINE" means the delivery of data from the Licensor Database
resident in the Licensee's computer (any such computer, a "COMPUTER"), using
telecommunications or the Internet to transport the data to the Customer.
"PERMITTED APPLICATIONS" means any one or more of these Applications
(and associated Services) pursuant to which information is made available to or
for a Customer (or, in the case of EDA, made available to a customer of a
Customer as part of a directory assistance service): (i) On-line EDA; (ii) Skip
Tracing (in which the desired information is searched for by Batch Access);
(iii) assisting Customers, through any of the Delivery
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<PAGE> 10
Methods, in Customers' efforts to locate individuals and business entities
who/which have previously been identified by the Customer (through means other
than the Services) for such Customer needs as Skip Tracing, collections,
servicing customers, product and service ordering and admission processing; (iv)
assisting Customers in verifying, through any of the Delivery Methods, address
and other information (of the kind contained in the Licensor Database) for
individuals and businesses identified by the Customer (through means other than
the Services); (v) assisting Customers, through any of the Delivery Methods, in
locating names, addresses and other information (of a kind contained in the
Licensor Database) concerning neighbors of such identified individuals including
for Skip Tracing; and (vi) through the Batch Delivery Method, Phone Append and
Reverse Phone Append.
"PHONE APPEND" means adding a telephone number and area code to a
record or file of an individual or business which has previously been identified
by the Customer (through means other than the Services).
"REVERSE PHONE APPEND" means adding name and address to a record or
file of the telephone number of an individual or business which has previously
been identified by the Customer (through means other than the Services).
"RBOCS" means the regional Bell operating telephone companies that
formerly were part of the AT&T Telephone system before their divesture.
"SERVICES" means making the data in the Licensor Database available to
(or the Licensee using the Licensor Database for) Customers (or, in the case of
EDA, made available to a customer of a Customer as part of a directory
assistance service) through the Delivery Methods for Applications enabling a
Customer to search for, display, perform, copy, print, download, process, adapt
and prepare derivatives of (as that term is contemplated in the Copyright Act of
1976, 17 U.S.C. Sections 101 and 106) such data, and, except in connection with
the Application described in clause (v) of the definition of Permitted
Applications, for the purpose of updating or supplementing existing records or
files concerning previously identified individuals and businesses.
"SKIP TRACING" means attempting to locate a debtor which has changed
its, his or her address, as part of an effort to collect indebtedness owed by
such debtor.
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<PAGE> 11
"TERM" means the duration of the license granted pursuant to section
2.0, which shall commence as of July 1, 1999, and expire on the [*] anniversary
of such date, unless earlier terminated pursuant to the terms of this Agreement.
"THIRD PARTY DATABASE" means any Database belonging to a Third Party
but with respect to which the Licensor possesses the right from time to time to
disclose and provide the same to the Licensee for the Services.
"THIRD PARTY" means any entity or person which is not the Licensor or
the Licensee or an Affiliate of the Licensor or the Licensee; a Third Party may,
incidentally, also be a Customer.
ARTICLE II: GRANT
2.0 TERMS OF GRANT. Subject to the Licensor's rights reserved in
section 2.2, the Licensor grants to the Licensee and its Affiliates as of the
date of this Agreement, under all of the Licensor's Intellectual Property Rights
the right (i) to store in the Licensee's Computer the Licensor Database (A) in
the Licensee's possession as of the date hereof or (B) delivered pursuant to
section 5.1, for use only in connection with the delivery of Services and (ii)
to access and, through the Delivery Methods, to provide the Services to enable
Customers (or, the Licensee for Customers) (or, in the case of EDA, make
available to a customer of a Customer as part of a directory assistance service)
to use, such data in the Licensor Database for the Applications (in each case,
subject to the limitations and conditions herein stated including without
limitation in Articles VII, X and XIII). [*] During the Term, the license
shall be exclusive as to the Exclusive Permitted Applications solely with
respect to those entities set forth in Exhibit 2.0. The license shall be
nonexclusive (a) as to the Exclusive Permitted Applications with all third
parties other than those entities set forth in Exhibit 2.0, and (b) with all
entities as to all Applications other than the Exclusive Permitted Applications.
For any Contract Year following a Contract Year for which Licensor does not make
a payment to Licensee pursuant to section 3.1, notwithstanding any other
provision in this Agreement to the contrary, during the Term, Licensor shall not
offer a product alone or in conjunction with a third party using the DQI2
Database
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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other than a data license in the ordinary course of business that (i) is the
same as or substantially similar to Licensee's FastData product (as such product
exists as of the date hereof), and (ii) competes directly with Licensee's
FastData product (as such product exists as of the date hereof); provided that
Licensor shall have the right to offer all Applications or products (including
EDA) offered by Licensor as of the date hereof provided such offering is not in
contravention with (i) and (ii) above. Notwithstanding any other provision in
this Agreement to the contrary, a Customer using the Service for EDA to conduct
a directory assistance service shall be permitted to disclose to its customers
in Service transactions the applicable information from the Licensor Database.
Notwithstanding any other pro vision of this Agreement, nothing in this
Agreement shall limit or restrict a Customer from disclosing or transferring its
records and files (as updated or supplemented with data from the Licensor
Database by use of the Services in accordance with the Permitted Applications
but without otherwise using the Licensor Database) to Third Parties, so long as
such Customer does not disclose the source of such updates or supplements.
Except as may be otherwise expressly authorized in this Agreement, the license
granted in this section 2.0 shall not extend to any "reseller arrangements," and
such license and the information in the Licensor Database shall not be
sublicensed, transferred or assigned without the Licensor's prior written
consent, and, other than as may be expressly set forth herein, the reference in
this Agreement to the receipt of the Service by Customers through Third Parties
shall not imply any consent or authority with respect to any such arrangements
or to any sublicense, transfer or assignment. Notwithstanding the foregoing, in
the complete and sole discretion of the Licensor, without any obligation
whatsoever to permit the Licensee to enter into any such arrangement, the
Licensor may consider a re quest by the Licensee to permit the Licensee to enter
into a reseller or sublicense arrangement. The Services rendered using the
Licensor Database shall be rendered solely in connection with the Applications.
Without limiting the generality of the foregoing, the license granted under this
section 2.0 shall not include the right to engage in or to provide Services in
connection with modeling, forecasting or profiling (as those terms are used in
the direct marketing industry) any data in the Licensor Database; provided, how
ever, that this limitation shall not prohibit the Licensee or Customers from
engaging in modeling, forecasting or pro filing activities outside of Service
transactions using Customer data (as updated or supplemented with data from the
Licensor Database by use of the Services in accordance with Permitted
Applications) without otherwise using the Licensor
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Database. Licensee shall use its best efforts to maximize Gross Revenues through
the exploitation of the licenses granted herein.
2.1 NEW DATA. During the Term, the Licensee shall have the right from
time to time to request to have included in the license granted under this
Agreement those portions of any Databases that the Licensor owns, or of any
Third Party Databases that the Licensor has, from time to time, the right to
provide to the Licensee in the manner and for the purposes set out in, and as
contemplated by, section 2.0, in each case which portions consist of the
specific types of information set forth in Appendix I (the "NEW DATA") on the
most favorable fee or royalty and other terms and conditions as the Licensor
shall offer to customers of the DQI2 Database, or of the successors to such
Database (taking into account economic and other material terms). If the
Licensee exercises its right to have the New Data included in the license
granted under this Agreement pursuant to this section 2.1, the parties shall
promptly prepare and sign a modification to this Agreement or other document
embodying the terms contemplated hereby with respect thereto. Upon the
development of any New Data during the Term, Licensor shall provide Licensee
with a written report describing such New Data. Licensor shall at all times have
the right to use and offer to Third Parties licenses for the New Data except to
those third parties listed in Exhibit 2.0 with respect to the Exclusive
Permitted Applications (other than the one described at clause (iii) of that
defined term, which, for the purposes of this section 2.1, shall not be deemed
to be an Exclusive Permitted Application). Nothing in this section 2.1 shall
prevent the Licensor from using or licensing the New Data for any purposes
except, during the Term, the Exclusive Permitted Applications and, then, only to
the extent provided in section 2.3.
2.2 LICENSOR'S RESERVED RIGHTS. As to the Applications contemplated
at clauses (iv), (v) and (vi) of the definition of Permitted Applications,
Licensor reserves the rights to use, directly and/or through licenses and/or
otherwise, in any manner, the Licensor Database, New Data, any Third Party
Database and any other existing or hereafter created Databases for those
Applications and all other applications except the Exclusive Permitted
Applications using any Delivery Methods or other delivery methods, whether or
not in competition with the Licensee, and as to the Exclusive Permitted
Application defined in clause (iii) of the definition of Permitted Applications,
the Licensor shall have the right, directly or indirectly, by license
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and/or otherwise, to update, correct, add, subtract or otherwise amend its own
and the Licensor's customers' Databases (and the Databases of the Licensor's
customers' prospects) for such functions as change of address or telephone
number, mailing, lead generation, collections, direct marketing, reactivation,
consumer file updating, store traffic building and other similar functions in
the manner similar to the Licensor's past and current activities. In addition,
the Licensee shall permit the Licensor to use the Service, free of charge, to
access the Licensor Database up to 1,000 times per month, for use in monitoring
the Services provided using the license granted under this Agreement or in
connection with the Licensor's database operations.
2.3 DATA FOR THE LICENSOR. Except to the extent prohibited by law,
rule, regulation or tariff applicable to the RBOC or the IOC which is the source
of such data, or by express prohibitions in written agreements with such RBOC or
IOC, the Licensee shall capture and provide to the Licensor, only at Licensor's
request, (by mutually acceptable communications or delivery means) all data
which is acquired by reason of Customer transactions which access data of RBOCs
and IOCs (whether or not such transactions access the Licensor Database). In
consideration of the Licensee's making such data available to the Licensor, the
Licensor shall pay to the Licensee the lesser of the Licensee's then-current
resale price per phone number (reflecting the most favorable fee or royalty
accorded to any Third Party by the Licensee for the time period in question
without regard to volume requirements, but taking into account economic and
other material terms) or $0.035 per net name used to update the DQI2 Database.
At the request of the Licensor, the Licensee shall, in good faith, discuss with
the Licensor making available, on mutually agreeable terms, to the Licensor for
the Licensor's use other types of data developed or acquired by the Licensee.
2.4 CERTAIN RIGHTS OF FIRST REFUSAL.
(a) [*]
(b) If the Licensor shall propose granting a license for the
Licensor Database for use by a Third Party in any market (which could relate to
all or a part of one or more countries) outside the United States of America
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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(including its territories, possessions and protectorates) for use in connection
with Services for the Applications, the Licensor shall give to the Licensee 21
days notice prior to any such grant. Thereupon, the Licensee shall have the
right of first refusal to extend the license in section 2.0 to use the Licensor
Database (and all applicable intellectual property rights of the Licensor in
such foreign market) in such foreign market for the Services and the
Applications, for the consideration set forth on such notice and otherwise
generally on the terms and conditions contained in this Agreement, which right
can be exercised by the Licensee before the expiration of said 21 days by notice
of exercise duly delivered to the Licensor. If the Licensee exercises its right
to extend the License in section 2.0 to use the Licensor Database in a foreign
market as herein set forth, the parties shall promptly prepare and sign a
modification to this Agreement or other document embodying the terms
contemplated hereby with respect thereto.
2.6 CUSTOMER CONTRACTS. The parties recognize that there are a
variety of laws, rules and regulations with which the Licensee must comply in
rendering the Services and that the Licensor, as a supplier of the Licensor
Database to be used therefor, has an interest in the Licensee's fully complying
with all applicable laws, rules and regulations, and with certain policies
established by the Licensor. The Licensee shall not deliver any Services without
having in place a Customer Contract with respect to such Services with the
Customer or the Third Party having a Customer Contract in place with the
Customer which receives the Service. Notwithstanding the foregoing, in the
absence of such a Customer Contract, the Licensee may nevertheless (a) provide
demonstrations of the Service for prospective Customers conducted exclusively by
employees of the Licensee, (b) permit one day one time trials of the Service by
prospective Customers or (c) commence to deliver Services to a Customer prior to
and in anticipation of the execution and delivery of a Customer Contract meeting
the requirements of this section 2.6 for a period of up to 90 days if the
Licensee and such Customer have in place during such period a letter of intent
having substantially the terms set forth in Exhibit 2.6-1. In the case of any
such demonstrations, trials and other arrangements described in the immediately
preceding sentence, the Licensee shall be responsible for (i) assuring
compliance with the terms of this Agreement and (ii) in the case of clause (c)
above, assuring compliance with the provisions set forth in Exhibit 2.6-1 prior
to entering into the Customer Contract and assuring that a Customer Contract
meeting the requirements of this section 2.6 is in place within the 90-day
period referenced above.
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All Customer Contracts shall include the provisions in the form of the contract
set forth in Exhibit 2.6-2 (including any "alternative provisions" therein set
forth with respect to specified provisions). So long as such Customer Contracts
comply with the provisions of this section 2.6, nothing in this section 2.6
shall be construed to require the Licensee to submit for the Licensor's approval
specific Customer Contracts. The Licensor reserves the right to add to Exhibit
2.6-2 any provisions required, or modify any provisions therein, (A) in order to
assure compliance by Customers with any existing or future law, rule or
regulation or (B) by any licensor under any existing or future Third Party
Database, included in the Licensor Database, in each case with respect to any
Customer Contracts which are entered into or renewed after 30 days following
receipt by the Licensee of a notice from the Licensor notifying the Licensee of
the addition or the modification of any such provisions. The Licensee shall
notify the Licensor as promptly as practicable if it becomes aware of any breach
by a Customer of the provisions set forth in Exhibit 2.6-2 (as amended from time
to time as herein provided) and included in such Customer's Customer Contract.
The Licensee shall terminate any Customer Contract, effective within the 60 days
described below, if the Customer thereunder fails to cure any such breach of
such Customer Contract within 60 days of notice to the Licensee to the effect
that the Licensor requests such cure or such termination.
ARTICLE III: ROYALTY AND OTHER LICENSE PAYMENTS
3.0 ROYALTIES. In consideration of the license and rights granted to
the Licensee under Article II, the Licensee shall pay to the Licensor in
accordance with section 3.1 royalties in the amount of $ [*] per Contract Year
during the Term (subject to the cost of living adjustment calculated in
accordance with Schedule A), subject to any payments from Licensor to Licensee
as provided in section 3.1. Notwithstanding the foregoing, in the event of any
assignment of this Agreement pursuant to Article XVI, then royalties due
hereunder shall be $ [*] per Contract Year (subject to the cost of living
adjustment calculated in accordance with Schedule A), and except as set forth
herein, no payments shall be due from Licensor to Licensee as provided in
section 3.1.
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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3.1 PAYMENTS. For each quarter during the Term, Licensee shall pay to
Licensor 25% of $ [*] (subject to the cost of living adjustment calculated in
accordance with Schedule A). Within 30 days after the end of the initial
one-year period of the Term, Licensee shall provide to Licensor a report
certified as true, correct and complete by an executive officer of the Licensee,
setting forth the Gross Revenues for the preceding two Contract Years. If the
average Gross Revenues for such two Contract Years (the "2- year Average") is
less than $ [*], then Licensor shall, within 30 days, pay to Licensee: (the
amounts paid by Licensee to Licensor during the initial one-year period of the
Term) minus (30% of the 2-year Average). Thereafter, for each subsequent
Contract Year, Licensee shall provide to Licensor a report certified as true,
correct and complete by an executive officer of the Licensee, setting forth the
Gross Revenues for the previous three Contract Years. If the average of such
three Contract Years (the "3-year Average") is less than $ [*], then Licensor
shall, within 30 days, pay to Licensee: (the amounts paid by Licensee to
Licensor during the reported Contract Year) minus (30% of the 3-year Average).
For the purpose of calculating the 2-year Average and the 3-year Average when
including years preceding the Term, such one-year periods prior to the Term
shall constitute "Contract Years."
3.2 AUDIT. The Licensee shall maintain current, accurate and complete
books and records relating to all usage of the Services by Customers and all
payments due to the Licensor under this Agreement. The Licensee shall also
maintain copies of all Customer Contracts (and amendments), and copies of all
circulars, advertisements, mailing pieces and other publicly disseminated
marketing, sales and similar promotional material used by the Licensee regarding
the Services, for at least two years following their expiration, termination or
use, as the case may be. All of these documents and copies shall be maintained
at Licensee's facilities at 2301 N. 117th Avenue, Omaha, Nebraska 68164, or
another location within the contiguous United States of America (the Licensee to
give to the Licensor at least ten days prior notice of removal thereof and
relocation to any other location). At any time after the date of this Agreement,
and for a period of two years after the termination or expiration of this
Agreement, the Licensee shall permit a Designated Firm (as hereinafter defined)
to examine, inspect, review and audit such documents and
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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copies. Such examination, inspection or audit shall only be permitted once per
year during the Term and once during the two-year period following the
termination or expiration of this Agreement. Such examination, inspection or
audit shall take place during the Licensee's normal business hours upon at least
nine business days prior notice and shall not unreasonably interfere with the
Licensee's conduct of its business. The Designated Firm may, at the Licensor's
expense, during the course of such examination, review or audit, make such
copies and/or extracts of the documents and copies that pertain to the Licensor
Database, the Services and/or the Applications, for its work paper purposes but
not for the purpose of providing the same to the Licensor. The Licensor's right
to use a Designated Firm to examine, inspect, review, audit and make copies
and/or extracts shall be subject to (i) the execution by the Designated Firm of
a confidentiality agreement reasonably proposed by the Licensee in order to
assure that any confidential information disclosed thereby will be kept
confidential and will be used only for the purposes of confirming the Licensor's
rights under this Agreement and assuring compliance with the terms hereof by the
Licensee and (ii) the limitation that the Designated Firm shall be limited to
on-site visits (all during one continuous 60-day period) with respect to one
audit procedure during each Contract Year. Notwithstanding the foregoing, the
Licensor and the Designated Firm shall have the right to make reasonable
inquiries and request documents, and to receive prompt responses from the
Licensee, at any time and from time to time, to confirm the Licensor's rights
under this Agreement and assure compliance with the terms hereof by the
Licensee; provided, however, that, without limiting the type or scope of
information or documents which may be requested or received by the Designated
Firm, the Licensor shall not have any right to receive any information or
documents (from the Licensee, the Designated Firm or otherwise) to the extent
they contain competitive and confidential information. For the purposes of this
Agreement, the "DESIGNATED FIRM" shall mean any accounting firm (including any
consulting or other group within such firm) designated from time to time by the
Licensor.
3.3 DISCREPANCY. Should any audit reveal an understatement of more
than 2.5% of Gross Revenues for any reported Contract Year, the Licensee shall
reimburse the Licensor for all the direct costs of performing the audit, such as
the fees and expenses of the Designated Firm. Any payments due from Licensee to
Licensor revealed by such audit shall be paid promptly following discovery
thereof. Should any audit reveal an overstatement of more than 2.5%
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of Gross Revenues for any reported Contract Year, the Licensor shall promptly
upon discovery thereof reimburse the Licensee for all such overpayment amounts.
3.4 FINANCIAL REPRESENTATION. Licensee represents that the financial
data regarding Gross Revenues set forth in Exhibit 6.0 is true and correct.
ARTICLE IV: TERMINATION
4.0 EARLY TERMINATION. This Agreement may be terminated immediately
by (i) either party if the other party breaches any material term, condition or
agreement contained in this Agreement and the breaching party does not cure such
breach within 60 days after receipt of written notice of such breach from the
non-breaching party, or (ii) the Licensee upon the expiration of the cure period
provided in Article VI hereof.
4.1 TERMINATION BY LICENSEE. Licensee shall have the right to
terminate this Agreement if Licensee (a) provides to Licensor [*] notice of its
intent to terminate, (b) for the [*] after providing notice of its intent to
terminate, pays to Licensor on a quarterly basis, 25% of $ [*] (subject to the
cost of living adjustment calculated in accordance with Schedule A), and (c)
commencing upon the expiration of the foregoing [*] period, and continuing
through the [*] anniversary of the effective date of this Agreement, exits the
business of providing Services or services substantially similar to the Services
and, for the same period, does not acquire from any Third Party the same or
substantially similar type of data that is available in the Licensor Database as
of the date of termination for use in the Services or services substantially
similar to the Services.
ARTICLE V: UPDATING, DELIVERY AND FORMAT;
CERTAIN SECURITY MATTERS
5.0 UPDATING AND QUALITY. Within the constraints of commercial
reasonableness, the Licensor shall, substantially as it had under the Original
License Agreement, support, update (monthly), supplement and expand and,
generally keep the Licensor Database competitive with the scope and content of
functionally similar Databases.
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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Without limiting the generality of the foregoing, the Licensor shall maintain
the Licensor Database so that the scope and quality of the data embodied
therein, to the extent it consists of the type of data specified in Appendix I,
is in conformance with the description thereof in Exhibit 5.0.
5.1 DELIVERY AND FORMAT. By reason of the Original License Agreement,
the parties have developed a procedure for delivering an updated version of the
Licensor Database to the Licensee on a monthly basis and in a format and to
specifications that are satisfactory to the Licensee, which updated version of
the Licensor Database replaces in its entirety the version delivered in the
previous month. During the Term, the Licensor shall continue to so update the
Licensor Database (to such extent) at least one time each month, and the
information included in such update shall, in each case, reflect information
which the Licensor has used to update the DQI2 Database no more than 14 days
prior to the delivery to the Licensee of such update. Such updates shall be
delivered in the format, with the encoding, and organized, all in the same
manner as developed by the parties under the Original License Agreement. A
reasonable number of copies of the Licensor Database, updated as provided above,
may be maintained on one or more Computers owned or leased exclusively by, in a
secured facility owned or leased exclusively for the use of, the Licensee.
5.2 REASONABLE SECURITY MEASURES. The Licensee shall take such
precautions and observe such procedures to protect the security of the Licensor
Database and the data in such Database including, without limitation, by
limiting physical and electronic access thereto (except as part of Service
transactions as herein contemplated) to employees and consultants on an "as
needed" basis and requiring that such persons execute appropriate
confidentiality agreements, in all cases at least to the extent that the
Licensee protects its own highly confidential and important proprietary
information. The Licensee shall be responsible for any breaches of such
confidentiality procedures and precautions of its employees or other persons who
gain access to the Licensor Database through the Licensee (except in connection
with Service transactions). In addition, the Licensee shall also take such
precautions, meeting the same standards as are set forth in the first sentence
of this section 5.2, and as are appropriate to protect the Licensor Database
against unauthorized access by persons who are not authorized to access such
information including, without limitation, taking precautions against
unauthorized access over phone lines, data networks or other communications
means.
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5.3 DESTRUCTION FOLLOWING UPDATES. Within 15 days following each
monthly update of the Licensor Database as contemplated by sections 5.0 and 5.1,
the Licensee shall return to the Licensor, or destroy, all copies of the
Licensor Database (other than the most recent monthly update) in its possession
(including any such copies in the Licensee's possession pursuant to the Original
License Agreement) together with all excerpts or portions of or extracts from
such copies of the Licensor Database in its possession, custody or control and
shall, upon request of Licensor, deliver to Licensee a certificate, executed by
an officer or other authorized representative of the Licensee, attesting to the
fact that all such copies of, and excerpts and portions of and extracts from the
Licensor Database in the Licensee's possession, custody or control (other than
the most recent monthly update) have been so returned to the Licensor or
destroyed.
ARTICLE VI: LICENSOR'S WARRANTY; LIMITATION OF LIABILITY
The Licensor represents, warrants and covenants that the information
contained in the Licensor Database (excluding information provided by any Third
Party Database) is and shall be as complete, accurate and current as it can be
in view of the Licensor's customary method of compilation and the nature and
accuracy of the Licensor's sources. The Licensor does not warrant that the
Licensor Database, or the information contained in it, to be free of errors, and
the Licensor does not warrant in any way any Third Party Data base, or any
information contained in any Third Party Data base. Notwithstanding the
foregoing, the Licensor shall use its commercially reasonable efforts to assist
the Licensee in taking advantage of any warranty, covenant or indemnity supplied
by and available through a Third Party supplier of a Third Party Database. THE
WARRANTIES HEREINABOVE STATED ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR USE. The Licensor shall not be liable in any event for
any claims for indirect, incidental, consequential or special damages including,
but not limited to, loss of goodwill and/or loss of profits. In the event of any
breach of the Licensor's warranties stated in this Article VI, (i) the Licensor
shall, within 60 days after receipt of the Licensee's first notice asserting the
Licensor's breach of such warranty, deliver to the Licensee a Licensor Database
that will not be in breach of these warranties and (ii) if the Licensor shall
have failed to so
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deliver such a Licensor Database which is not in breach of such warranties
within such 60 days, the Licensee may (but shall not be obligated to), and is
hereby licensed and authorized to, correct, update, refresh and supplement the
information in the Licensor Database with information from Third Party sources.
The Licensor shall not be deemed to be in breach of this Article VI unless and
until the Licensor fails to deliver a Licensor Database that is in compliance
with the warranties stated in this Article VI within said 60 days.
ARTICLE VII: LICENSEE'S WARRANTIES
The Licensee represents, warrants and covenants that (a) its use of
any portion of the Licensor Database delivered to or accessed by it under this
Agreement shall be restricted to providing Services for Applications through the
Delivery Methods (and for training of the Licensee's personnel, testing,
maintenance and other similar non-revenue generating purposes, and for testing
Customer files for compatibility with the Service, demonstrations for
prospective Customers and "help" telephone service assistance), and (b) in
rendering the Services, the Licensee shall use reasonable efforts to assure
itself and the Licensor (upon the Licensor's reasonable request) that usage of
the Licensor Database by any Customers shall in all cases comply in all material
respects with all federal, state and local laws, statutes, rules, regulations
and ordinances and the provisions required by section 2.6 to be in each Customer
Contract. Without limiting the foregoing, the Licensee shall not use the
Licensor Database or the Service, and shall use its commercially reasonable to
assure that no Customer uses the Licensor Database or the Service, in connection
with any sweepstakes, contest, game or similar promotional device. For these
purposes, "sweepstakes" shall mean a promotional device by which items of value
(prizes) are awarded to participants by chance without the promoter's requiring
them to render something of value to be eligible to participate (consideration).
THE WARRANTIES HEREINABOVE STATED ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED. The Licensee shall not be liable in any event for any claims for
indirect, incidental, consequential or special damages including, but not
limited to, loss of goodwill and/or loss of profits.
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ARTICLE VIII: TAXES
Licensee shall pay to Licensor, in addition to the amounts set forth
in Article III, all taxes (excluding those based upon Licensor's gross receipts,
net income or corporate franchise taxes), fees and assessments now or hereafter
imposed by any governmental authority directly related to any of the rights or
privileges (including access to and use of the Licensor Database and use of the
Delivery Methods) granted to the Licensee by the Licensor under this Agreement.
ARTICLE IX: UNCONTROLLABLE EVENTS
Neither the Licensor nor the Licensee shall be responsible for any
cessation or delay in the performance of its obligations hereunder due to causes
beyond its reason able control including, but not limited to, fire, accident,
labor difficulty, strike, riot, war, civil commotion, act of God, equipment or
system failure or changes in any federal, state or local laws, statutes, rules,
regulations or ordinances. A party whose performance has been halted or delayed
by any such uncontrollable event shall use its reasonable efforts to overcome or
correct the uncontrollable event and to resume performance. The Term shall be
extended by a period corresponding to the period in which performance is
terminated or delayed due to an uncontrollable event.
ARTICLE X: TITLE TO LICENSOR DATABASE AND INFORMATION
The Licensee acknowledges that the Licensor has expended considerable
time, effort and funds to compile and to integrate the Licensor Database and the
Licensee covenants not to put in question in any way (either by an attack on the
validity of the Licensor's rights in the Licensor Database or otherwise), and
acknowledges that as between the Licensor and the Licensee, all of the
Licensor's rights, title and interest in and to the Licensor Database and all
information contained in the Licensor Database are, and at all times shall
remain, in the Licensor and, except as is otherwise expressly provided in this
Agreement, the Licensee's right to use the Licensor Database, and the
information contained therein, is personal to, and nonassignable by, the
Licensee. Except as expressly permitted in section 13.1, the Licensee shall not
at any time make any copies or duplicates of the Licensor Database or any
portion thereof, or furnish any copies, or excerpts or portions of or extracts
from, the Licensor Database, in any form (electronic, magnetic, optical, paper
or otherwise) to any Third Party (including, without limitation, any
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Customer) without the express prior written consent of the Licensor, except that
the Licensee may provide excerpts, extracts or portions of the Licensor Database
for the Applications in Service transactions as contemplated herein. Upon
termination of the license granted pursuant to the terms of this Agreement, the
Licensee shall return to the Licensor, or destroy, all copies of the Licensor
Database in its possession, custody or control together with all excerpts or
portions of or extracts from the Licensor Database in its possession, custody or
control. At the time of such return or destruction, the Licensee shall, upon
Licensor's request, deliver to the Licensor a certificate, executed by an
executive officer of the Licensee, attesting to the fact that all copies of, and
excerpts and portions of and extracts from the Licensor Database in the
Licensee's possession have been so returned to the Licensor or destroyed.
ARTICLE XI: RESTRICTIONS
11.0 STATUTORY AND OTHER RESTRICTIONS ON USE. The Services shall be
operated, as contemplated in Schedule B, so that the Licensee's rendering of
Services under the license granted in this Agreement (and, to the best of its
knowledge after reasonable inquiry, the rendering of any Services by Third
Parties as permitted by section 2.0 or otherwise and the use by Customers of the
information in the Licensor Database) shall not subject the Licensor to the Fair
Credit Reporting Act, 15 U.S.C. Section 1681 et seq. (or any successor or
amended enactment). All automobile registration information contained in the
Licensor Database is obtained through a Third Party from state motor vehicle
registration agencies and may be subject to use restrictions imposed either by
said Third Party or by the states supplying such information, or both. In the
event current restrictions described in the immediately preceding two sentences
are amended, or new restrictions imposed, the Licensor shall notify the Licensee
of such amendments or impositions and thereafter the Licensee shall forthwith
comply with said amended or newly imposed restrictions. Other Third Party
Databases (that is, in addition to the automobile registration information) may
be subject to similar or other restrictions or changes. The Licensee shall not
provide Services to any government, governmental body or governmental or law
enforcement body, unit or agency (collectively, "AGENCY"), except for collection
and Skip Tracing, or to any proposed Customer which the Licensee believes or has
reason to believe would use the Service in connection with any pornographic or
other product or service which caters to prurient interests.
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Without limiting the generality of the foregoing, no Services may be provided to
Agencies for investigation or other law enforcement purposes.
11.1 RESTRICTED ACCESS. Although there shall be no prohibition against
such competitors being Customers of the Services for internal use, and without
limiting the generality of the prohibitions in section 2.0 against reseller
arrangements and against the sublicense, transfer or assignment of the license
herein granted, the Licensee shall not offer or deliver (and shall not permit
any Third Party to offer or deliver) the Licensor Database or any information
from the Licensor Database to any of the following direct competitors of the
Licensor for resale: R. L. Polk & Company, Database America, National
Demographics and Lifestyles, R. R. Donnelley (all divisions), The Dun &
Bradstreet Corporation, VNU (all divisions), Strategic Mapping, Experian,
Equifax, Trans Union, Advo, May & Speh, Acxiom (all divisions), Epsilon Data
[Management, Inc.], Harte-Hanks, Val-Pak and I Rent America, and any successors
to any of these businesses. The Licensor may add or delete names of its direct
competitors to or from the foregoing listing without the consent of the
Licensee; provided, however, that no more than two such additions shall be made
in any calendar year and the number of such direct competitors shall not exceed
20; provided, further, that all such additions shall be made in good faith.
11.2 NO USE OF MARKS. The Licensee shall not use any trademark, trade
name or service mark which belongs or is licensed to the Licensor or any of its
Affiliates, and shall not use the name of the Licensor or any of its Affiliates,
in any public communication, without the prior written consent of the Licensor,
except in each case to the extent consistent with the practice and substance
observed by the parties to and under the Original License Agreement. In this
regard, any written marketing or Customer service materials which bear any
trademark, trade name or service mark which is owned by or is licensed to the
Licensor or any of its Affiliates, including without limitation, manuals,
newsletters and instructions for general dissemination to Customers, shall be
subject to the approval of the Licensor, which approval shall not be
unreasonably withheld or delayed.
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ARTICLE XII: WARRANTY OF TITLE; INDEMNIFICATION
12.0 COMPILATION. The Licensor represents, warrants and covenants that
the Licensor Database delivered (or to be delivered) to the Licensee hereunder
was (and shall be during the Term) compiled from publicly available and from
authorized sources, without any violation of any law, rule or regulation
including, without limitation, the Fair Credit Reporting Act, 15 U.S.C. Sewtion
1681 et seq., and any laws generally known as "privacy legislation"; provided,
however, that the Licensor's representation, warranty and covenant set forth
above, to the extent it relates to (a) Third Party Databases which are part of
the Licensor Database as herein provided or (b) such "privacy legislation," is
only made to the best of the Licensor's knowledge after reasonable inquiry.
12.1 OWNERSHIP/AUTHORIZATION. The Licensor represents, warrants and
covenants that it is either the owner of, or, to the extent the Licensor
Database consists of data or information from a Third Party Database, duly and
lawfully authorized by the Third Party providing such Third Party Database to
make available to the Licensee (and "resellers" permitted by the Licensor
pursuant to section 2.0 or otherwise) for use for rendering Services to
Customers for the Applications, the Licensor Database and has the right, power
and authority to grant the licenses granted hereunder. Subject to the
limitations set forth in Article XIV, the Licensor shall indemnify, defend and
hold the Licensee harmless from and against all claims, costs, losses, expenses
and damages (excluding indirect, special or consequential damages (including
lost profits)) suffered by the Licensee primarily and directly attributable to
any Third Party allegation that the Licensor Database (excluding information
provided by any Third Party Database) was not legally compiled, whether through
independent creation or effort, or from publicly available, or from other lawful
authorized, sources, or any allegation of copyright infringement or infringement
of other Third Party Intellectual Property Rights arising directly and primarily
out of the license hereunder of and/or the Licensee's use or provision of the
Licensor Database (excluding information provided by any Third Party Database)
for providing Services for the Applications through the Delivery Methods, in the
manner licensed in this Agreement (including, to the same extent and subject to
the same limitations, any such claims, costs, losses, expenses and damages
suffered by the Licensee (including for indemnity obligations or the like to
"resellers" permitted by the Licensor pursuant to section 2.0 or otherwise)
primarily and directly
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attributable to any such Third Party allegation arising in connection with such
"reseller" arrangements). In connection therewith, (a) the Licensee shall give
to the Licensor prompt notice of any such allegation, (b) the Licensor shall
maintain full and complete control over the defense of any such allegation and
(c) the Licensee shall fully cooperate (at the Licensor's cost to the extent of
the Licensee's reasonable out-of-pocket expenses) with the Licensor in the
defense of any such allegation and shall comply with any settlement or license
that the Licensor shall elect to enter into with any claimant (provided only
that the Licensee's compliance shall not occasion material additional expense to
the Licensee or materially adversely impact upon the Licensee's ability to offer
Services for the Applications, through the Delivery Methods, to any Customer).
THIS ARTICLE XII SETS FORTH THE FULL EXTENT OF THE LICENSOR'S LIABILITY WITH
RESPECT TO ANY ALLEGATION RELATING TO THE SUBJECT MATTER OF THIS ARTICLE XII
INCLUDING THAT THE LICENSOR DATABASE WAS NOT LEGALLY COMPILED EITHER THROUGH
INDEPENDENT EFFORT, FROM PUBLICLY AVAILABLE OR FROM OTHER LAWFUL AUTHORIZED
SOURCES OR ANY ALLEGATION OF COPYRIGHT INFRINGEMENT OR INFRINGEMENT OF OTHER
THIRD PARTY INTELLECTUAL PROPERTY RIGHTS ASSERTED BY A THIRD PARTY.
ARTICLE XIII: CONFIDENTIALITY
13.0 DATABASES. Any Database provided (or to which access is granted)
by the Licensor to the Licensee under this Agreement shall be stored and used by
the Licensee in such manner that use of and access thereto is limited as
contemplated by this Agreement. The manuals and instructions and other written
materials (the "DOCUMENTATION") delivered with or to be used for any such
Database shall also be maintained by the Licensee in confidence, with access to
be limited to the Licensee's employees and consultants having a need therefor to
perform their assigned tasks for the Licensee. In this regard, the Licensee
shall also observe the requirements of Article V. In addition, the Licensee
shall comply with contractually imposed restrictions on Third Party Databases of
which restrictions the Licensee has notice in writing or of which restrictions
the Licensee has actual knowledge.
13.1 BACK-UP COPIES. Unless otherwise restricted by reason of Third
Party restrictions, the Licensee may make and store a reasonable number of
back-up copies of any Database delivered to the Licensee under this Agreement
but shall return or destroy and, generally in accordance with section 5.3 and
Article X, certify to the Licensor as to the
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return or destruction of such back-up copies within the time and in the manner
provided therein.
13.2 COOPERATION. Should any person (such as an employee) or entity
who or which gains access to any Database delivered or licensed to the Licensee
under this Agreement, improperly use, copy or access (or provide unauthorized
access to) such Database, the Licensee shall immediately, upon learning of (or
having reasonable reason to suspect) any such conduct, notify the Licensor and,
at its own expense for legal fees and other expenses, cooperate with the
Licensor (and, as appropriate, any providing Third Party) to assist the Licensor
or such Third Party to enjoin and otherwise redress such conduct, and discourage
any repetitions by the offending individual, entity or others similarly
situated, and shall take such further steps as the Licensor (or such Third
Party) shall request (including complaints to law enforcement authorities). In
the event that civil litigation is desired by the Licensor (or such Third
Party), the Licensor (or such Third Party) shall have supervision and control
and, in defense of any counterclaim, the parties shall engage in a joint
defense, and, generally, shall conduct and defend any litigation in such manner
as to preserve the attorney-client and work-product privileges and maintain the
Licensor Database (and any related Documentation) in confidence, such as
through entry of appropriate protective orders.
ARTICLE XIV: INDEMNIFICATION; DAMAGES
14.0 GENERAL. Each of the parties (in this context, an "INDEMNIFYING
PARTY") to this Agreement agrees to indemnify and hold harmless the other party
to this Agreement (in this context, an "INDEMNIFIED PARTY") against all claims,
demands, losses, costs, expenses, obligations, liabilities, damages, recoveries
and deficiencies, including interest, penalties and reasonable outside
attorneys' and experts' fees and expenses and costs of settlement (but excluding
any indirect, special or consequential damages (including lost profits)),
suffered, incurred or sustained by the Indemnified Party which arise out of (i)
any breach of the covenants and agreements, or any material inaccuracy in the
representations and warranties, made by the Indemnifying Party in this Agreement
or any other document specifically required to be delivered by this Agreement,
or (ii) any claim of any Third Party or any Customer of the Licensee or any
Third Party arising out of any such breach or material inaccuracy by the
Indemnifying Party.
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14.1 NOTICE AND RESOLUTION OF CLAIM. The Indemnified Party hereunder
shall give notice to the Indemnifying Party promptly (and, in any case, within
one year) after obtaining knowledge of any claim, demand, right, right of action
or other matter as to which recovery may be sought against the Indemnifying
Party under section 14.0. The failure to give notice within such one year after
obtaining such knowledge will preclude any right of indemnification or other
recovery under this Agreement relating to such claim, right, right of action or
other matter. Such notice shall state with reasonable particularity the
circumstances surrounding such claim, right, right of action or other matter. If
the indemnification hereunder is sought arising out of the claim of any Third
Party, the Indemnified Party shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting from such claim. In
addition, the Indemnified Party shall cooperate and assist, and shall use its
commercially reasonable to cause its employees to cooperate and assist, the
Indemnifying Party in connection with any claim, right or right of action for
which indemnification is sought under section 14.0.
14.2 DAMAGES. Other than with respect to obligations set forth herein
relating to or requiring the payment of monetary consideration from one party to
the other, the aggregate monetary liability of either party hereto, whether
under section 14.0 or otherwise, arising out of any and all breaches and
failures of representations, warranties, covenants or agreements by such party
under this Agreement in any Contract Year, and any and all inaccuracies in
representations or warranties under this Agreement arising during such Contract
Year, shall not exceed $2,000,000. Other than with respect to obligations set
forth herein relating to or requiring the payment of monetary consideration from
one party to the other, neither party shall make any claim or initiate any
action or proceeding against the other party under this Agreement, whether under
section 14.0 or otherwise, in any Contract Year unless and until (and only to
the extent) aggregate damages arising out of any such breach or inaccuracy in
such Contract Year exceed $100,000. In addition to all of the above, other than
with respect to obligations set forth herein relating to or requiring the
payment of monetary consideration from one party to the other, no single claim
for any breach or inaccuracy shall be valid unless the damage to the party
making a claim with respect thereto is in excess of $25,000, and therefore
neither party hereto shall seek or receive redress for such claim, whether under
section 14.0 or otherwise. Notwithstanding the $2,000,000
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limitation set forth in the first sentence of this section 14.2, the monetary
liability of the parties may exceed such limitation if and to the extent
liability arises out of any breach or failure of representations, warranties,
covenants or agreements by the Licensor set forth in Article XII; provided,
however, that the Licensee shall share any liability with respect to such
matters on an equal basis with the Licensor if the Licensee, by breach or
failure by it of any representations, warranties, covenants or agreements under
this Agreement or otherwise due to its willful, negligent or other wrongful
acts, contributed to the event or circumstance leading to any such monetary
liability arising out of such breach or failure of such representations,
warranties, covenants or agreements in Article XII.
ARTICLE XV: INDEPENDENT CONTRACTORS
This Agreement is not intended to and does not create any agency or
partnership relationship between the parties. Neither the Licensee nor the
Licensor shall be authorized to commit or bind the other party in any way. The
Licensor and the Licensee are independent contractors and neither the Licensor
nor the Licensee shall represent to any Customer or to any Third Party that it
is the agent or representative of the other.
ARTICLE XVI: ASSIGNMENT
This Agreement shall not be assigned by either of the parties hereto
(the party desiring to assign being the "ASSIGNING PARTY"), without the prior
written consent of the other party, except to a Parent or a Subsidiary or an
Affiliate directly or indirectly wholly-owned by a Parent of the Assigning Party
or as permitted by Licensor pursuant to Article XXVI or in connection with the
sale of all or substantially all of the operating assets or equity of a party or
the merger or consolidation of a party's business with another entity, in each
case with the entity to which this Agreement is assigned or transferred agreeing
in writing to be bound by the terms hereof (other than any assignment by the
Licensor pursuant to Article XXVI). In the event of the sale of all or
substantially of the operating assets or equity of a party, the Assigning Party
shall assign this Agreement to the party acquiring such assets. In the case of a
permitted assignment by a party in connection with the sale of all or
substantially all of the operating assets or equity of such party to another
entity, the Assigning Party shall be relieved and discharged from all
obligations, responsibilities and liabilities under this
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Agreement; otherwise, the Assigning Party shall not be relieved from such
obligations, responsibilities and liabilities. Notwithstanding the immediately
preceding sentence, if the Assigning Party is the Licensee, the Licensee shall
not be relieved or discharged of such obligations, responsibilities or
liabilities unless the Licensor consents in writing to such sale; provided,
however, that such consent shall not be unreasonably withheld or delayed;
provided, further, however, that no such consent shall be required if the
assignee or acquirer is a Credible Buyer (as hereinafter defined). For the
purposes of this Article XVI, a "CREDIBLE BUYER" shall be any entity (i) the
equity securities of which are traded publicly on any recognized exchange or
market and have a market capitalization of at least $250 million or (ii) the
equity securities of which are not so traded but have an aggregate appraised
value (as determined by a nationally recognized investment banking or accounting
firm) of at least $250 million. As used herein, the term "PARENT" of an
Assigning Party shall be the entity which owns at least 80% of the capital stock
(in terms of voting power for the election of directors) of the designated
party, and the term "SUBSIDIARY" shall mean an entity, at least 80% of the
capital stock (in terms of voting power for the election of directors) of which
is owned by the designated party.
ARTICLE XVII: NOTICES
Any notice provided for in this Agreement shall be in writing and
shall be given by facsimile or by hand delivery and shall be deemed to have been
received by the addressee on the first Business Day following the day it was
received or it was so delivered (if such day is a Business Day or if such day is
not a Business Day, then the first Business Day following such day), as the case
may be. Notices to the Licensor shall be addressed to:
Donnelley Marketing, Inc.
2800 Post Oak Blvd.
Suite 5700
Houston, TX 77056-6118
Attention: President
Facsimile: (713) 599-3513
Telephone: (713) 599-3500
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and notices to Licensee shall be addressed to:
First Data Resources Inc.
2301 North 117th Avenue
Omaha, NE 68164
Attention: President
Facsimile: (402) 498-7900
Telephone: (402) 498-7455
Either party may at any time give notice in writing, by any delivery methods
authorized in this Article XVII, to the other party of any change of address.
"BUSINESS DAY" as used in Article XVII means any day except Saturday or Sunday
or a statutory holiday in the States of Texas or Nebraska.
ARTICLE XVIII: ARBITRATION
18.0 MANDATORY ARBITRATION; EXCEPTIONS. Except in the event of any
litigation or proceeding commenced by any Third Party against either the
Licensor or the Licensee in which the other party is an indispensable party or
potential third party defendant, and except for enforcement of any interim or
preliminary remedy (to the extent such remedy is sought before the arbitration
panel is duly appointed and convened), any dispute or controversy between the
parties involving the interpretation, construction or application of any terms,
covenants or conditions of this Agreement, or transactions under it, or any
claim arising out of or relating to this Agreement, or transactions under it,
shall, on the request of one party served on the other, be submitted to
arbitration in accordance with the provisions of this Article XVIII.
18.1 FORUM. Any such dispute, controversy or claim will be settled by
arbitration in the City of Omaha, Nebraska (except as may otherwise be agreed by
the parties in their discretion) in accordance with the rules of the American
Arbitration Association then in effect, except as herein specifically otherwise
stated or amplified, and judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction over the party against whom the
award is sought to be entered.
18.2 ADDITIONAL PROCEDURE. Notwithstanding anything to the contrary
which may now or hereafter be contained in the rules of the American Arbitration
Association, the procedures set out in this section 18.2 shall apply.
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(a) A notice of arbitration shall set out a clear and plain
statement of the matter that the party sending the notice (the "INSTITUTING
PARTY") believes to be a breach or is in dispute. The demand (the "DEMAND")
shall reference principal provisions of this Agreement that the Instituting
Party views as controlling or out of the interpretation of which the dispute
arises, and shall attach copies of all pertinent documents and other things then
in its possession which the Instituting Party views as having direct bearing on
the relief sought under the Demand. The receiving party (the "OTHER PARTY")
shall, within 20 days of receipt of the Demand, provide to the Instituting Party
and to the arbitrators a response (the "ANSWER"), referencing provisions of this
Agreement that the Other Party views as controlling, and shall attach copies of
all pertinent documents and other things (other than those attached to the
Demand) then in its possession which it views as having direct bearing to
support the contentions of the Answer. Each party shall appoint one person to
hear and determine the dispute within ten days after the Other Party's receipt
of the Demand. (If a party fails to so designate its arbitrator within said ten
days, then the arbitrator designated by the party designating an arbitrator
shall act as the sole arbitrator and shall be deemed to be the single,
mutually-approved arbitrator to resolve the controversy.) The two persons so
chosen shall, within 20 days, select a third, impartial arbitrator. If they fail
to do so within said 20 days, either party may petition any court of competent
jurisdiction in Omaha, Nebraska (or in any other jurisdiction to which both
parties may, in their discretion, agree) to appoint the third arbitrator. The
majority decision of the three-arbitrator panel (or the decision of the single
arbitrator) shall be final, binding, conclusive and nonappealable.
(b) Each arbitrator shall be experienced in the direct marketing
or information industries. Each party shall pay the arbitrator it designated and
shall share the cost of the third (or, if applicable, the sole) arbitrator. In
the event that the parties are unable to agree upon a rate of compensation for
the third (or sole) arbitrator, the arbitrator shall be compensated for his or
her services at a rate to be determined by the American Arbitration Association.
(c) Discovery shall be liberally allowed by the arbitrators as
contemplated by Federal Rules of Civil Procedure, subject, however, to such
limitations as the arbitrators determine to be appropriate under the
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circumstances, it being the parties mutual desire to have a prompt and efficient
arbitration.
(d) The arbitrators shall endeavor to promptly schedule the
hearings, and to hold the hearings (on consecutive days if practicable), and
shall have authority to award relief under legal or equitable principles,
including interim or preliminary relief. Nothing in this section 18.2(d) shall
impair the right of a party to seek interim or preliminary relief in a court of
competent jurisdiction sitting in Omaha, Nebraska (or in any other jurisdiction
to which both parties may, in their discretion, agree) before the arbitration
panel is constituted and convened.
(e) Other than attorneys' fees and expenses (which shall be
borne by the party incurring the same), the costs of the arbitration shall be
borne by the losing party or shall be allocated between the parties in such
proportions as the arbitrators decide.
(f) The arbitrators shall, upon the request of either party,
promptly (and in all events within 30 days of the conclusion of the hearing)
issue a proposed written opinion of their findings of fact and conclusions of
law which shall become final and binding in accordance with the terms thereof
unless either or both parties seek reconsideration in accordance with section
18.2(g). In making their decision, the arbitrators shall be bound by the terms
of this Agreement.
(g) Either party shall have the right, within 20 days of receipt
of the arbitrators' proposed opinion, to file with the arbitrators a motion to
reconsider (accompanied by a reasoned memorandum), and the other party shall
have 20 days to respond to that memorandum. After receipt of such memorandum and
response, if any, the arbitrators thereupon shall reconsider the issues raised
by said motion and, promptly, either confirm or change their majority decision
which shall then be final and conclusive upon both parties. The costs of such a
motion for reconsideration and written opinion of the arbitrators shall be borne
by the moving party, or shared equally by both parties if both parties request
such reconsideration.
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ARTICLE XIX: GOVERNING LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Nebraska (excluding its conflict of laws rules).
ARTICLE XX: SEVERANCE
In the event any of the terms and conditions of this Agreement are
deemed invalid by a competent tribunal, such terms shall be deemed severed from
this Agreement, which shall, as so modified by the severance, in all other
respects remain in full force and effect.
ARTICLE XXI: COMPLETE AGREEMENT
This Agreement constitutes the sole and exclusive expression of the
terms and conditions relating to the subject matter hereof and supersedes all
prior oral and written statements of any kind whatsoever made by the parties
with respect to the subject matter of this Agreement. No modification or
amendment of this Agreement shall be binding on the parties hereto unless agreed
to in a writing referring specifically to this Agreement and signed by the duly
authorized representatives of each of the parties. The headings of the Articles
and sections of this Agreement are provided solely for convenience of reference
and shall not be used in the interpretation of this Agreement.
ARTICLE XXII: WAIVER
No waiver of any term or provision of this Agreement shall be deemed
effective unless such waiver is in writing and signed by the party to be charged
with such waiver. The failure or delay of any party to exercise in any respect
any right provided for in this Agreement shall not be deemed a waiver of any
right under this Agreement.
ARTICLE XXIII: PARTIES
NOTHING IN THIS AGREEMENT IS INTENDED TO CONFER ANY RIGHTS OR REMEDIES
UNDER OR BY REASON OF THIS AGREEMENT ON ANY PERSONS OR ENTITIES OTHER THAN THE
PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND PERMITTED ASSIGNS IN
ACCORDANCE WITH ARTICLE XVI HEREOF. WITHOUT LIMITING THE FOREGOING, NO THIRD
PARTY SHALL BE A BENEFICIARY OF THIS AGREEMENT (INCLUDING THE PROVISIONS UNDER
ARTICLES XII OR XIV).
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ARTICLE XXIV: EQUITABLE RELIEF
The remedy at law for breach of the parties' unique rights pursuant to
this Agreement being inadequate, the parties agree that each shall be entitled,
in addition to such other remedies as it may have, to preliminary and permanent
injunctive relief and to specific performance for any breach or threatened
breach of this Agreement by the other party without proof of any actual damages
that have been or may be caused to it by such breach.
ARTICLE XXV: IMPLIED OBLIGATION DISCLAIMED
The parties expressly disclaim any implied obligations on the part of
the Licensee to exploit the Licensor Database (including New Data, if any)
and/or Third Party Databases, if any.
ARTICLE XXVI: LICENSE NOTICE MATTERS
Subject to prior approval of the form and content thereof by the
Licensor (which approval shall not be unreasonably withheld or delayed), the
Licensee may, from time to time, prepare, file and/or record such notices and
other documents (such as memoranda of exclusive license) with such state and/or
federal governmental offices and agencies as the Licensee reasonably deems
necessary to place Third Parties on constructive notice of this Agreement and
the transactions and matters contemplated herein and, upon the reasonable
request of the Licensee, the Licensor agrees to (i) promptly subscribe to,
acknowledge, execute and deliver such notices and other documents for such
filings and/or recordations, and (ii) take such other actions (such as
registering its copyright in the Licensor Database) as Licensee shall reasonably
request in order to permit, accommodate and/or facilitate such filings and/or
recordations. In addition, the Licensee agrees that no such notice or document
shall state or imply that the license granted under this Agreement is exclusive
(although it may state that the license granted hereunder is exclusive for
certain applications). The Licensee shall, upon reasonable request by the
Licensor, promptly subscribe to, acknowledge, execute and deliver such notices
and other documents for such filings and/or such recordations, and take such
other actions, in order to permit or facilitate the pledge of, or the granting
of a security interest in, the Licensor Database, this Agreement or any other
property or assets of the Licensor, by the Licensor, in each case to the extent
consistent with the terms and conditions of this Agreement.
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Article XVI shall not prevent the pledge of, or granting of such security
interest.
[Intentionally Left Blank]
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EXECUTION
Each party, intending to be bound thereby, has caused this Agreement
to be executed by its duly authorized representative, whereupon it enters into
full force and effect in accordance with its terms.
WITNESSED DONNELLEY MARKETING, INC.
By
- ------------------------------- -------------------------------------
WITNESSED FIRST DATA RESOURCES INC.
By
- ------------------------------- -------------------------------------
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APPENDIX I
Types of Data and Description of Licensor Database
CONSUMER INFORMATION
o Name
o Address
o Telephone Number
o Nearbys
o Change of Address
o Demographic Information
- Estimated Age of Head of Household
- Length of Residence
- Dwelling Unit Type
- Gender
o Other Household Members
- Vehicle Information
o Home Owners Model
o RAZE: Regional Area Code Zip Code Exchange
o Bellcor: Cellular phone number or pay telephone number
o FIND: Income Model
o SESI: Socio Economic Status Indicator
The parties have endeavored to identify the information that is provided to
Licensee by Licensor as of the date first written above. Should either
party following the date first written above identify information that was
provided to Licensee by Licensor as of the date first written above that is
not set forth on this appendix, the parties agree to cooperate in good
faith to adjust this appendix accordingly. If the parties fail to agree to
an appropriate adjustment to this appendix within forty-five (45) days
after a party identified in writing to the other party a potential
adjustment, then either party may have such dispute resolved pursuant to
the terms of Article XVIII.
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SCHEDULE A
COST OF LIVING ADJUSTMENT
COST OF LIVING ADJUSTMENT
For each Contract Year after the fourth Contract Year, the $ [*]
royalty amount (and amounts dependent thereon) shall be increased by the
percentage increase, if any, in the U.S. CPI as compared to the immediately
preceding Contract Year. For the purposes of this Agreement, "U.S. CPI" for any
Contract Year means the "Consumer Price Index for All Urban Consumers (CPI-U)
U.S. City Average for All Items" published by the Bureau of Labor Statistics for
the United States Department of Labor (1982-1984=100). If the U.S. CPI shall be
converted to a different standard reference base or otherwise revised after the
date hereof, U.S. CPI shall thereafter be calculated with use of such new or
revised statistical measure published by the Bureau of Labor Statistics or, if
not so published, as may be published by any other reputable publisher of such
price index selected by the Licensee and the Licensor.
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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SCHEDULE B
SPECIFIC RESTRICTIONS RELATING
TO FAIR CREDIT REPORTING ACT
Neither the Services nor the information obtained therefrom shall be
used in part or whole as a factor:
(1) in establishing an individual's eligibility for credit or
insurance;
(2) in connection with underwriting insurance involving an
individual;
(3) in evaluating an individual for employment, promotion,
reassignment or retention as an employee; or
(4) in connection with a determination of an individual's eligibility
for a license or other benefit granted by a governmental
instrumentality.
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EXHIBIT 2.0
EXCLUDED ENTITIES
[*]
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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EXHIBIT 2.6-1
FORM OF LETTER OF INTENT PRIOR TO
ENTERING INTO CUSTOMER CONTRACT
[*]
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
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EXHIBIT 2.6-2
FORM OF CUSTOMER CONTRACT
[NOTE: TO COME FROM LICENSEE.]
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EXHIBIT 5.0
DESCRIPTION OF LICENSOR DATABASE
The Licensor Database includes and shall include information of the
type set forth in Appendix I taken from the consumer information Database
product commonly known as the DQI(2) Database (the "DQI(2) DATABASE"), or
whatever database product is the successor to the DQI(2) Database. The Licensor
Database is and shall be compiled from accepted database industry or direct
marketing industry sources as well as other means available to the Licensor in
the Licensor's discretion.
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EXHIBIT 6.0
GROSS REVENUES
First Data Solutions
FastData Revenue From the DQI File
1998 [*] (Actual)
1997 [*] (Actual)
1996 [*] (Actual)
1995 [*] (Actual)
Note: The revenue for 1995 through 1998 was calculated by multiplying the actual
transactions by the average rate per FastData transaction.
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
-2-
<PAGE> 1
EXHIBIT 10.2
CERTAIN CONFIDENTIAL INFORMATION IN
THIS EXHIBIT DENOTED BY ASTERISKS
HAS BEEN REDACTED PURSUANT TO
17 C.F.R. SUBSECTION 200.80(b)(4),
200.83 AND 240.24b-2
COVENANT NOT TO COMPETE
This Covenant Not to Compete is made and given this 23rd day of July,
1999 (this "Covenant"), by First Data Corporation, a Delaware corporation
("Parent"), to infoUSA Inc., a Delaware corporation ("Purchaser").
ARTICLE I
DEFINITIONS
Except as provided below, capitalized terms not defined herein shall
have the meanings provided in the Agreement and Plan of Reorganization dated as
of May 28, 1999 (the "Agreement') by and among Purchaser, Parent, Donnelley
Marketing, Inc., a Delaware corporation (the "Company"), and certain other
parties named therein.
"Alliance" means any venture (in any form, including in corporate,
partnership or limited liability company form) or contractual alliance now or
hereafter entered into between Parent or any of its Affiliates and one or more
third Persons pursuant to which the third Person venturer has the contractual or
other legal right to block major business and/or corporate actions by such
venture.
<PAGE> 2
"Controlled Affiliate" means an Affiliate (other than an Alliance) in
which Parent, directly or indirectly, owns greater than 50% of the equity
interests and has the power to direct the business that such Affiliate may or
may not conduct.
"Merchant Acquiring Services" means the provision of any of the
following services or products, directly or indirectly, to merchants in respect
of Transaction Cards: (i) the authorization and capture of transactions, (ii)
the submission of such transactions for interchange settlement or other
settlement, (iii) the preparation of statements or reports based on such
transactions, chargebacks and other exception items (including by electronic
access), (iv) the provision of customer service or other back office services in
respect of any of such transactions, (v) the sale, lease or rental of POS
hardware relating to any of the foregoing and (vi) clearing and settlement
services.
"Restricted Activities" means the business as currently conducted by
the Company, including the provision of list services (including sale, licensing
and list rental), database marketing services (including housing, storing,
maintaining, enhancing and updating data), compilation or aggregation services,
data processing services that constitute merge/purge, address hygiene (including
the National Change of Address (or NCOA) product) and data append services and
database information services that constitute market segmentation, consumer
profiling, modeling and demographic information services.
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<PAGE> 3
"Transaction Cards" means debit cards, credit cards (including private
label and retail credit cards), bank cards, oil cards, payment cards, electronic
benefit payment cards, smart cards, stored value cards or other similar cards.
ARTICLE II
COVENANT
In consideration of the transactions contemplated by the Agreement,
Parent hereby covenants and agrees as follows with Purchaser:
(a) Except as provided in paragraph (b) and (c) below, Parent
covenants and agrees that, beginning on the Closing Date and for a period ending
on the fifth anniversary of the Closing Date, neither Parent nor any of its
Controlled Affiliates will own, manage, operate or control a business engaged in
the Restricted Activities anywhere in the United States of America; provided,
however, that nothing set forth in this Covenant shall prohibit Parent or its
Affiliates from:
(i) owning not in excess of 10% in the aggregate of any class
of capital stock of any corporation (including a corporation engaged
in a Restricted Activity) if such stock is publicly traded and listed
on any national or regional stock exchange or on the Nasdaq national
market system;
(ii) except as provided in clause (iv) below, acquiring, and
following such acquisition, actively engaging in, any business that
has a subsidiary,
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<PAGE> 4
division, group, franchise or segment that is engaged in any
Restricted Activity ("Competing Unit"), so long as on the date of such
acquisition not more than 25% of the consolidated revenues of such
business are derived from a Restricted Activity;
(iii) except as provided in clause (iv) below, acquiring and,
following such acquisition, actively engaging in any business that has
a Competing Unit if on the date of such purchase more than 25% of the
consolidated revenues of such business are derived from a Restricted
Activity, so long as such business divests itself of the Competing
Unit promptly after the date of such acquisition so that on the date
of such divestiture not more than 25% of the consolidated revenues of
such business are derived from a Restricted Activity; provided,
however, that with respect to any purchase intended to be accounted
for as a pooling of interests under GAAP or treated for federal income
tax purposes as a tax-free reorganization, no such divestiture shall
be required until, in the reasonable opinion of Parent, such
divestiture would no longer endanger the accounting of such
acquisition as a pooling of interests under GAAP or the treatment for
federal income tax purposes of such acquisition as a tax-free
reorganization;
(iv) acquiring and, following such acquisition, actively
engaging in any business identified on Annex A hereto that has a
Competing Unit,
4
<PAGE> 5
provided, however, that Parent and Purchaser shall negotiate in good
faith for a period of 45 days from the date of Parent's or its
Controlled Affiliate's acquisition of such business the purchase by
Purchaser of such Competing Unit from Parent or its Controlled
Affiliate on terms and conditions that are agreed to by Purchaser and
Parent or such Controlled Affiliate; provided, further, that if at the
end of such 45-day period no such agreement has been reached, Parent
or the Controlled Affiliate shall cause such business to divest itself
of the Competing Unit promptly thereafter; and, provided, further,
that if the purchase of such business was intended to be accounted for
as a pooling of interests under GAAP or treated for federal income tax
purposes as a tax-free reorganization, no such divestiture to
Purchaser or any third Person shall be required until, in the
reasonable opinion of Parent, such divestiture would no longer
endanger the accounting of such acquisition as a pooling of interests
under GAAP or the treatment for federal income tax purposes of such
acquisition as a tax-free reorganization;
(v) performing any services pursuant to the Data Agreements;
or
(vi) engaging in any activity or providing any services of the
type currently being performed or provided by Parent or its Affiliates
(other than the Company) or any enhancements or modifications of such
activities or services
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<PAGE> 6
and new activities or services developed in support of such activities
or services to remain competitive in the applicable industry.
(b) Nothing in this Covenant, including paragraph (a) above, shall
prevent Parent or its Affiliates from providing any of the following products or
services (including any products or services supportive or ancillary to any
Restricted Activity conducted by a third Person):
(i) issuing or processing of Transaction Card transactions and
related products, services and systems (including the MarketStat
product, which is a product that is currently intended to use data
collected, assembled or obtained by Parent or its Affiliates in
connection with the operation of businesses not prohibited by this
Covenant or data provided by its customers for, among other things,
marketing purposes), loan processing services and line-of-credit
services;
(ii) issuing, processing, clearing, verification and guarantee
of checks (including electronic truncation thereof), credits, debits,
drafts, ATM transactions, ACH transactions, electronic funds
transfers, recurring payment transactions;
(iii) electronic and/or paper bill, invoice, statement or notice
presentment and payment services;
(iv) official checks and money orders services;
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<PAGE> 7
(v) funds transfer services;
(vi) payment processing, including bill payment, remittance
processing, tax payment, payment instrument services and cash
management services;
(vii) in store and other off-site retail location facility
installments and related consulting services;
(viii) mutual fund shareholder recordkeeping services and
systems; mutual fund portfolio accounting services and systems and
related legal, tax, compliance, treasury and administrative functions;
third party mutual fund distributor services as a registered
broker-dealer under the Securities Exchange Act of 1934; third party
defined contribution plan recordkeeping services and systems; and
third party defined benefit plan recordkeeping services and systems;
(ix) preparation and mailing (or other form of delivery,
including electronic delivery) of bills, invoices, statements or
notices;
(x) messaging services, including the preparation, printing,
facsimile or electronic transmission and/or mailing of letters or
other communications and the preparation and telephonic delivery of
pre-recorded voice messages;
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<PAGE> 8
(xi) automated voice response and call center services
(including directory assistance);
(xii) telephone check drafting or electronic funds transfer
services (including Internet and web-based transactions) and the
enrollment, authorization and confirmation services provided in
connection therewith or in connection with bill payment and
presentment;
(xiii) provision (whether by batch or transactional) of
analytic modeling products or services (including various "scoring"
products and services) relating to credit worthiness, householding,
profitability, customer services, collection effectiveness, retention,
fraud, bankruptcy, settlement, payment and related metrics regarding
transactions, accounts or business performance and the provision of
credit reports and other credit bureau services, account screening
services and other credit reporting applications and check acceptance
services;
(xiv) the business currently conducted by Hogan Information
Services Co. ("Hogan"), a Delaware company and a wholly-owned
subsidiary of Parent, including the sale, licensing or rental of
public record data, suppression, merge/purge, address hygiene and data
appending services utilizing public record data, public records
on-line, public record batch services, bankruptcy, divorce and tax
lien notification and screening, document retrieval, pre- and
post-employment screening and any other products or services utilizing
public record
8
<PAGE> 9
data or components thereof, until such time, if any, as Purchaser
consummates the purchase of Hogan pursuant to the Hogan Option
Agreement, dated as of the date hereof between Purchaser and Parent;
(xv) utilizing in any manner data collected, assembled or
obtained by Parent or its Affiliates in connection with the operation
of businesses not prohibited by this Covenant;
(xvi) making of outbound telephone calls and written
communications to a debtor seeking collection of amounts owed by such
debtor;
(xvii) processing of debit or credit transactions for deposit
accounts;
(xviii) employment screening, customer acquisition and address
management services; or
(xix) Merchant Acquiring Services and services offered to
merchants in connection with the establishment of Internet-based
commerce.
(c) Nothing in this Covenant, including paragraph (a) above,
shall prevent any Affiliate of Parent from engaging in the Restricted Activities
after such Affiliate ceases to be an Affiliate of Parent.
9
<PAGE> 10
ARTICLE III
MISCELLANEOUS
(a) In the event that Parent or any of its Controlled Affiliates
violates any of their respective obligations under this Covenant, Purchaser may
proceed against such Person in law or in equity for such damages or other relief
as a court may deem appropriate. Parent acknowledges that a violation of this
Covenant may cause Purchaser or its Affiliates irreparable harm which may not be
adequately compensated for by money damages.
(b) It is the intent and understanding of each party hereto that if,
in any action before any Governmental Entity legally empowered to enforce this
Covenant, any term, restriction, covenant or promise in this Covenant is found
to be unreasonable and for that reason unenforceable, then such term,
restriction, covenant or promise shall be deemed modified to the extent
necessary to make it enforceable by such Governmental Entity.
(c) Purchaser may transfer this Covenant (i) in connection with any
merger or consolidation of Purchaser with another corporation, provided that
Purchaser furnishes the Parent with notice of such transfer within 10 business
days after the public announcement of the same; or (ii) in connection with the
transfer or sale of substantially all of Purchaser's equity or assets, provided
that Purchaser furnishes Parent with notice of such assignment and assumption
within 10 business days prior thereto. Subject to the foregoing, all provisions
contained in this Covenant shall extend to and be binding
10
<PAGE> 11
upon the parties hereto and their respective permitted successors and permitted
assigns.
(d) This Covenant (i) constitutes the entire agreement among the
parties with respect to the subject matter hereof and supercedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof, (ii) is not intended to confer upon any
other person any rights or remedies hereunder, and (iii) except as is otherwise
required by applicable law, may only be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
(e) All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(i) if to Purchaser, to:
infoUSA Inc.
5711 South 86 Circle
Omaha, Nebraska 68127
Attention: Vinod Gupta
Telephone No.: (402) 593-4500
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Francis S. Currie, Esq.
Telephone No.: (415) 493-9300
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<PAGE> 12
(ii) if to Parent, to:
First Data Corporation
6200 S. Quebec
Englewood, Colorado 80111
Attention: President
with a copy to:
First Data Corporation
6200 S. Quebec
Englewood, Colorado 80111
Attention: General Counsel - Integrated Services Division
and a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: David Zampa, Esq.
Telephone: (312) 853-4573
(f) This Covenant shall be governed by and construed in accordance
with the laws of the State of New York, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
(g) This Covenant may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each of the parties and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this Covenant to be
executed the day and year first above written.
infoUSA INC.
By
--------------------------------------
Name
------------------------------------
Title
-----------------------------------
FIRST DATA CORPORATION
By
--------------------------------------
Name
------------------------------------
Title
-----------------------------------
13
<PAGE> 14
Annex A
Identified Competitors
[*]
[*] CERTAIN CONFIDENTIAL INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
14
<PAGE> 1
EXHIBIT 10.3
HOGAN OPTION AGREEMENT
THIS OPTION AGREEMENT (the "AGREEMENT") is made and entered into as of
July 23, 1999 ("EFFECTIVE DATE") by and among infoUSA Inc., a Delaware
corporation ("PURCHASER") and First Data Corporation, a Delaware corporation
("SELLER").
RECITALS
Purchaser and Seller have entered into an Agreement and Plan of
Reorganization dated as of May 28, 1999, (the "REORGANIZATION AGREEMENT"), and
pursuant to Section 7.3 of the Reorganization Agreement, Purchaser and Seller
are entering into this Agreement.
Seller currently owns, beneficially and of record, all shares of Hogan
Information Services Co. (the "COMPANY") outstanding on the date hereof and
there are no securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities.
Seller desires to grant Purchaser (or, at the option of Purchaser, an
Affiliate of Purchaser) an option to acquire the Company (the "SALE"), on the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, the parties agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in the Reorganization Agreement.
"ANTITRUST LAWS" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
"EXERCISE NOTICE" shall have the meaning attributed to it in
Section 2(b).
"OPTION" shall have the meaning attributed to it in Section 2(a).
"OPTION EXERCISE DATE" means the date Purchaser gives the
Exercise Notice to Seller.
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<PAGE> 2
"OPTION PERIOD" means the period beginning on the Effective Date
and ending at 23:59 pm on the date falling nine (9) months after the Effective
Time.
"SALE AGREEMENT" shall have the meaning attributed to it in
Section 3.
2. Option to Purchase Shares.
(a) Option. Seller hereby grants to Purchaser an exclusive and
irrevocable right, at any time during the Option Period, to acquire the Company
upon the terms and subject to the conditions set forth herein (the "Option").
(b) Exercise of Option. Purchaser may exercise the Option by
providing to Seller a written notice (an "EXERCISE NOTICE") specifying that it
wishes to exercise the Option at any time during the Option Period.
(c) Termination of the Option. The Option shall terminate if not
previously exercised at the expiration of the Option Period provided, however,
that if Purchaser has provided an Exercise Notice to Seller prior to the
expiration of the Option Period, but the Option cannot be exercised by reason of
any applicable government order or because the waiting period related to the
purchase of the Shares under the Antitrust Laws shall not have expired or been
terminated, then the Option shall not terminate until the tenth business day
after such impediment to exercise shall have been removed or shall have become
final and not subject to appeal, provided, further that in any event, the Option
shall not be exercisable after the date that is one year following the Effective
Time.
3. Sale Agreement. As soon as possible after the Option Exercise
Date, Purchaser and Seller shall in good faith enter into negotiations with
respect to, and shall use their reasonable best efforts to enter into, an
agreement setting out the terms and conditions of the Sale (the "SALE
AGREEMENT"). The Purchaser and Seller hereby agree that the Sale Agreement shall
include the following provisions: (i) the purchase, in a tax-free or taxable
transaction of all of the outstanding shares of the Company, substantially all
of the assets of the Company, a merger involving the Company or such other form
of transaction, for a price of $30 million in cash; and (ii) representations,
warranties and covenants by Seller and Purchaser, indemnities and tax sharing
provisions and conditions to close, all of which shall be mutually satisfactory
to Purchaser and Seller.
4. Covenants of the Seller. Seller agrees (except to the extent that
Purchaser shall otherwise consent in writing, which consent shall not be
unreasonably withheld) that during the Option Period and thereafter until the
Sale Agreement is entered into, the Company will carry on its business and will
not enter into any commitment which would prevent Purchaser from exercising the
Option in accordance with its terms.
5. General Provisions
5.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally or by
commercial delivery service, or mailed by
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<PAGE> 3
registered or certified mail (return receipt requested) or sent via facsimile
(with acknowledgment of complete transmission) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice.
(a) if to Purchaser, to:
infoUSA, Inc.
5711 South 86 Circle
Omaha, Nebraska 68127
Attention: Vinod Gupta
Telephone No.: (402) 593-4500
Facsimile No.: (402) 339-0265
with a copy to:
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Francis S. Currie, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(b) if to Seller, to
First Data Corporation
6200 South Quebec
Englewood, Colorado 80111
Attention: Chief Executive Officer
Telephone: (303) 488-8388
Facsimile: (303) 488-8876
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: David Zampa
Telephone: (312) 853-4573
Facsimile: (312) 853-7036
5.2 Interpretation. The words "include" "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
-3-
<PAGE> 4
5.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
5.4 Entire Agreement; Assignment. This Agreement and the
documents and instruments and other agreements among the parties hereto
referenced herein: (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof; (b) are not intended to confer upon any other person any
rights or remedies hereunder; and (c) shall not be assigned by operation of law
or otherwise except as otherwise specifically provided, except that Purchaser
may assign its rights and delegate its obligations hereunder to its affiliates;
provided, that notwithstanding any such assignment Purchaser agrees that it will
be obligated by the terms and conditions of any Sale Agreement (either as a
party to such agreement or as a guarantor of the obligations of its affiliate
that executes such agreement).
5.5 Severability. In the event that any provision of this
Agreement or the application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the remainder of
this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further agree
to replace such void or unenforceable provision of this Agreement with a valid
and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
5.6 Other Remedies. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
5.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
5.8 Rules of Construction. The parties hereto agree that they
have been represented by counsel during the negotiation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
5.9 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
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<PAGE> 5
IN WITNESS WHEREOF, Purchaser and Seller have caused this Agreement to
be signed by their duly authorized respective officers, all as of the date first
written above.
INFOUSA INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
FIRST DATA CORPORATION
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
[SIGNATURE PAGE TO HOGAN OPTION AGREEMENT]
-5-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000879437
<NAME> INFOUSA INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 38,489
<SECURITIES> 15,290
<RECEIVABLES> 54,531
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 115,968
<PP&E> 75,520
<DEPRECIATION> 33,308
<TOTAL-ASSETS> 264,193
<CURRENT-LIABILITIES> 42,359
<BONDS> 118,498
0
0
<COMMON> 124
<OTHER-SE> 96,672
<TOTAL-LIABILITY-AND-EQUITY> 264,193
<SALES> 113,093
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 91,115
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,048
<INCOME-PRETAX> 20,118
<INCOME-TAX> 8,248
<INCOME-CONTINUING> 11,870
<DISCONTINUED> 0
<EXTRAORDINARY> 128
<CHANGES> 0
<NET-INCOME> 11,998
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.25
</TABLE>
